The AP Shah committee said on Wednesday that Reliance Industries Limited had made unfair profits from ONGC's oil fields in the Krishna-Godavari basin.
It has also asked the government to claim compensation for the "unjust benefit" RIL received.
The panel also claimed that ONGC has no claim on the compensation as "it does not have any ownership rights or possessory interest in the natural gas."
It further said that ONGC had prior idea about possible migration of gas, as far back as 2007 and that it took action only in 2015.
But RS Sharma, Former CMD of ONGC, told CNBC-TV18 that the company's management was not aware of such possibility till 2013. Sharma was CMD when the incident took place.
He further questioned the panel's conclusion that any compensation from RIL should go to the government, and said that any penalty should be paid to the company instead.
The oil ministry will now decide what action it wants to take basis the report's findings but Sabri Hazarika, Oil Analyst at PhillipCapital, said that even a worst-case outcome for RIL would result in a fine not more than 2-3 percent of the company's market capitalization.
Below is the verbatim transcript of RS Sharma & Sabri Hazarika’s interview to Anuj Singhal, Latha Venkatesh & Sonia Shenoy on CNBC-TV18.
Latha: What are your first comments on the report? The report has come down quite heavily on ONGC as well with the argument that ONGC knew about the gas migration from 2007 probably but chose to complain six years later?
Sharma: I have seen the report briefly in the morning, in fact the report says they suspect that ONGC may be aware. They had called for some more files and details from ONGC which they did not get.
To my understanding because I was heading ONGC at that point of time I can say with all certainty that ONGC management at any level didn’t come to know of this until 2013.
That is a very categorically statement I am making. So, that is a perception of the committee that since they did not get the files and all perhaps ONGC was aware, so that it has to be seen.
Latha: The sentence is - On the question of knowledge the committee finds that it is unable to draw final conclusions regarding RIL’s and ONGC’s prior knowledge without any evidence being laid before it, as you pointed out. However, nevertheless certain observations are warranted and I am quoting the committee again - The committee finds that the 2003 appraisal report prima facie reveals RIL had prior knowledge about connectivity and continuity of the reservoirs and it did not bring the contents of these findings to the notice of the Directorate General of Hydrocarbon (DGH). ONGC on its part also had some form of prior knowledge about possible continuity in 2007, but did not act promptly or with due diligence and took up the matter only six years later. It is not all that cloudy. It is a little direct.
Anuj: Just to add a point to what Latha is saying it also says - an entity of the stature of and relevance of ONGC can’t be permitted to languish for a period of 15 to 20 years.
Sharma: If you look at the articulation of the report itself, you see there are lot of doubts and I have even seen that you are reading from the somebody's recommendation.
I have seen the main part of the report where it is said that committee had asked for some more files and details from ONGC which did not reach it and as a result they suspect that ONGC had some sort of knowledge or kind of things and they say it needs to be examined.
Latha: Just to take Anuj’s point was about output that you all had got the wells in 1997 but for 15 years not much output had come from that well?
Sharma: This particular block was is not a new exploration licensing policy (NELP) block; it was a Petroleum Mining Lease (PML) nominated block and this particular discovery when it was made we had lot of discussions on this.
On standalone basis it was by any imagination, by any assumptions it was not coming viable. So, ONGC had decided that they will do cluster development combining the other discoveries also in that area and that is how they will go about.
Then the issues came of the gas prices, somehow one obstacles after the other prevented ONGC to develop this block. I repeat this particular discovery; this particular block was not viable on standalone.
Sonia: What about the impact on Reliance? Even if Reliance is made liable to pay this compensation to ONGC which would of course be challenged, many analyst believe that worst case impact could be limited only to Relinace’s net EBIT from the mentioned volumes which is just around Rs 1,600 to Rs 2,000 crore. What is your own estimate?
Hazarika: We haven’t done the calculation yet because we haven’t gone through the report as such. We are not actually sure about what decision the ministry would take because it is a very unprecedented case.
I agree that around Rs 1,600-1,700 crore it will be a marginal impact but they have been some other numbers also quoted like around Rs 11,000 crore of gas being migrated. So, even if we take that case then if we remove it from the market cap then it is hardly 2 to 3 percent of the market cap of Reliance. So, that is simply the worst case scenario of 2-3 percent.
Latha: The point on which I wanted your comment - the money may not come to ONGC according to the report and its observation it should go to the government of India. What might be the total amount according to you, the panel has not said. They say as of April 01st 2009 the migrated gas is 7.09 and 4.11 billion cubic metres (BCM) of gas that had migrated from Godavari and from KG-DWN-98/2 and then as of 01/01/2017 that is prospective it says it can be 7.519 and 4.377 BCM of gas that would have migrated from Godavari and from that KG-DWN-98/2. In your estimate how much should this be in terms of money?
Sharma: Just to clarify on that, the quantum of gas migration and the valuation thereof that has earlier been covered in DeGolyer and MacNaughton (D&M) report so it is already there. On that basis now the Justice AP Shah Committee they have said yes they are right and they have clearly validated the outcome of that report. There is no reason to disbelieve that.
So, that would be the quantum on which the compensation should come to ONGC. I don’t agree with the committee report that he restitution will go to the government of India.
Latha: How do you think ONGC might proceed from here on?
Sharma: First of all I have to compliment ONGC management that their claim has been fully validated without any if’s and buts’ that I know there were lot of eyebrows were raised into 2013 when ONGC raised this claim.
So, that is the first thing and a responsible corporate they will abide by the government decision on this. Wherever needed and only issue is that I personally and even ONGC management does not agree; I will say that this compensation legitimately has to come to ONGC.
It cannot go to the Government of India that is a wrong interpretation as per my understanding on the part of the committee.
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