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Cabinet reshuffle: Veerappa Moily's appointment could trigger revival of oil sector

Moily's first few words after being named oil minister would be music to their ears."As on today, (oil) demand is rising.So ultimately, it is energy security that has to be addressed.

, ET Bureau|
Oct 29, 2012, 05.50 AM IST
Veerappa Moily takes charge as oil minister

NEW DELHI: M Veerappa Moily takes charge of the oil ministry after the tumultuous reign of Jaipal Reddy who took on Mukesh Ambani and sternly dealt with Reliance Industries and Cairn Plc, while bureaucrats shuddered to take decisions and consumers faced chaos in buying cooking gas.

Leading oil companies have complained they have faced insurmountable red tape and have been unable to develop proven fields as the oil ministry was obsessed with stern enforcement of contracts in a manner that would satisfy the comptroller and auditor general of India (CAG).

Moily's first few words after being named Moily's first few words after being named oil minister would be music to their ears. "As on today, (oil) demand is rising. So ultimately, it is energy security that has to be addressed. would be music to their ears. "As on today, (oil) demand is rising. So ultimately, it is energy security that has to be addressed. Delay will cost the nation and common people. We need to take decisions immediately," he said. "It is politically volatile and sensitive ministry, but if you strongly go in quest of solutions, perhaps obstacles will melt away," he added.

That is a clear departure from the way oil ministry has functioned since last year. In Jaipal Reddy's tenure, top Reliance executives often had to wait for months for an appointment with top bureaucrats.

The company initiated arbitration against the government after the ministry said the company cannot recover all its costs in the D6 block as it had spent excessively to build excessive infrastructure but actual gas production was much lower than planned. The ministry imposed a penalty of over $1 billion for a steep decline in gas output from Reliance operated D6 block.

Sources close to the former minister say that Reddy had no choice but to address the issues raised by the CAG, who said the government had been very lenient in enforcing contracts. Reddy's supporters also say that he restored the dignity of the ministry, which had acquired the image of bending backwards for coporate interests, and he has also taken difficult decisions such as raising diesel prices, leaving an easy path for Moily.

But private executives are not convinced. "If CAG was the problem then the ministry could have taken a positive approach and tried to jointly find a solution in which exploration does not suffer and decisions are taken in a manner that does not conflict with audit norms," an executive in a leading private company said.

Reliance had argued that output fell because of geological uncertainties, but the director general of hydrocarbons blamed the company and insisted that production dropped because the company did not drill enough wells.


"Oil ministry could have hired international experts to examine RIL's contention that output dropped due to geological complexities. But the ministry doubted RIL's intention without any basis," an expert, who had earlier worked in the ministry, said requesting anonymity. At a recent press conference earlier this month, former oil minister S Jaipal Reddy had said he was not convinced with RIL's argument that geological complexity was the reason for declining gas output.

Reliance has proven gas fields which it could not develop so far because of regulatory obstacles. Further, three coal bed methane (CBM) blocks operated by Reliance and Essar could not be developed because the oil ministry did not approve price of their gas for more than a year. London-based Hardy has been forced to stop crude oil production since July last year at its Cauvery basin block because the oil ministry has refused to extend a key contract in the field without competitive bidding.

Congress leaders said the new minister would make a difference. "Moily is a good administrator with significant knowledge of law. He is unbiased and has a clean image. He will be able to expedite decision-making in the oil and gas sector," a senior Congress politician said. The oil ministry's functioning has been questioned by the Prime Minister's Office (PMO), the finance ministry, the cabinet secretariat and the Planning Commission.

PMO has been directly monitoring about a dozen of issues related to inter-department clearances, reorganization of oil ministry's technical arm Directorate General of Hydrocarbons (DGH), KG-D6 developments and prospective changes in oil and gas exploration contracts. The Planning Commission has recently asked the oil secretary to consult it on important matters before circulating cabinet notes.

Recently, Planning Commission Secretary Sindhushree Khullar had shot a letter to oil secretary asking him to involve the commission before bringing crucial changes in oil and gas exploration policies. "There are some moves by the oil ministry to make certain policy changes that would adversely affect investors' sentiment," one government official said.

Mid and lower-level bureaucrats at the oil ministry, whose portfolios had been often reshuffled in the last 18 months, have high hopes with Moily.

"Hopefully, in next two months we would see some stability so that works will progress. Currently, there is no incentive in suggesting solutions to any problem on the file because officers with independent minds are suspected to be aligned with private companies," on director in the oil ministry said requesting anonymity.

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