Oil Minister Murli Deora has rejected the Reliance and Reliance Natural Resources Ltd gas deal price. He says the RIL-RNRL gas price does not meet the Production Sharing Contract criteria. He further adds that the gas deal is not made on a competitive basis.
S P Tulsian, Investment Advisor believes that this issue will drag on for quite some time, since the difference between the settled price and the present price is vast.
Giving his views on the RNRL stock, Tulsian further explains that RNRL did not have any business model except for having the gas rights secured from Reliance Industries and if that also comes under the cloud with no visibility, then definitely there are no business models in front of the company.
"Therefore, I do not see any point or meaning in remaining invested or holding on to the share," he says.
Excerpts from CNBC-TV18's exclusive interview with Investment Advisor, SP Tulsian:
How have you read the news and what do you think RNRL might have to do?
The news is definitely bad from Reliance Natural Resources Limited RNRL's point of view because we have been hearing that there has been some differences between the pricing that was settled by Reliance Industries Ltd for the supply of gas to RNRL.
But that was not confirmed, and now it seems that the Petroleum Ministry has objected to the price mainly based on the competitive arm-length bidding process or the pricing policy.
So if that doesn't come through, then this is definitely a bad news for RNRL and probably maybe for Reliance Energy Ltd too, which has been setting up 7,500 megawatt power project in Dadri.
How do you think this will end? Do you think Anil Ambani will fail to convince Murli Deora that it is indeed arm-length pricing and let the deal go through at that price?
Reliance Industries has to play a major role to persuade the oil ministry because here it is not on one-on-one basis, but more on the agreement, which has been executed.
Now the production sharing contract clearly mentions that ultimately the government is the largest beneficiary, as in the initial period maybe for three-four-five years, the government is going to get a buy out maximum 28-30 per cent of the royalty sharing, but thereafter a major chunk will float to the government.
So it is not for Anil Ambani to persuade or to convince any minister or any ministry.
Ultimately, everything will revolve around the interpretation of the agreements having entered into by Reliance Industries in the oil ministry.
If you see the terms also, while making a settlement as a family settlement, there seems to be some gray areas left out, which have not been tackled properly between the brothers.
But now this is more of a corporate restructuring and not the family settlement.
So except for the promoters having gained or lost, there won't be any differences or any profits or losses accruing to the set of shareholders because ultimately they have got the shares of all the restructured companies. So probably that argument could also go against the brothers, while making any persuasion or trying to settle this issue.
But for the company itself, $3 price versus the prevailing price as the government says of about Rs 8 to 10 is quite different?
Even if one takes the price, which they have settled at, that is $2.34 per mbtu (million British thermal unit) and the present price, which is ruling around close to $5-6, there is definitely a vast difference and that is precisely the cause of this whole problem.
If there would have been a marginal difference, then nobody would have gone for it because these are long-term contracts. And generally, if it pans for over a period of six-ten years, nobody would object for a difference of about 10-20 per cent.
But since there is a difference of over 100 per cent, probably this issue will drag on for quite some time and I do not see any signs of things getting settled soon.
What do you do with the RNRL stock now, skip it till you have more clarity on this pricing?
As such, RNRL did not have any business model except for having the gas rights secured from Reliance Industries and probably thereafter they would have revealed their plans. So if that also comes under the cloud and if one does not see any visibility, then definitely there are no business models in front of the company.
Therefore, I do not see any point or meaning in remaining invested or holding on to the share. Probably the share price will move in the range of Rs 20-25 or maybe Rs 20-30 because when there was no clarity, the price band used to be about Rs 25-30-32. But in view of this controversy, the price per share will rule anywhere between Rs 20-25 or maximum Rs 27-28.
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