Govt run by corporates? Reddy's shift out of oil triggers storm

Is the oil minister’s seat the hottest of all in India? Arguably, it is.

For the simple reason that the ministry has to deal with the most controversial yet successful business conglomerate in India, Reliance Industries.

Jaipal Reddy’s removal from the oil ministry is the latest instance.

Opposition parties and name-and-shame expert Arvind Kejriwal already smell a rat in the move. They have alleged that Reddy was shifted to the low-profile science and technology ministry under pressure to please Mukesh Ambani of Reliance Industries.

“The government should explain why Jaipal Reddy was removed and given an unimportant portfolio. Was there pressure from industrial houses,” BJP leader Venkaiah Naidu, has been quoted as saying in a report in the Economic Times.

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[caption id=“attachment_507545” align=“alignleft” width=“380”]  The controversy will only make Veerappa Moily’s life in the oil ministry difficult. Anything he does is going to be heavily scrutinised. PTI[/caption]

However, Digvijay Singh has denied any pressure on the government, saying the reshuffle is a prerogative of the prime minister.

“Is this the PM using his prerogative or is this Reliance’s prerogative,” asked Arvind Kejriwal.

Jaipal Reddy, however, sounded a bit stoic. He said he was not happy when he was given oil portfolio, so the removal did not make him unhappy either. However, there were rumours that Reddy was sulking after the decision to shunt him out of the key ministry and may even resign.

“All my life I have taken positions on issues. I have taken positions on ideological issues. I have not taken positions on portfolio,” he said.

Industry analysts, however, feel the move has boded well for Reliance Industries, which has head a rocky relationship with RIL and rose 1.5% after the cabinet changes were announced.

Only last week had Reddy given approval to Reliance to further develop its oil and gas block, KG-D6.Moody’s has said the move is a positive for the company.

Moily’s oil dilemma and Reddy’s legacy

The controversy will only make Veerappa Moily’s life in the oil ministry difficult. Anything he does is going to be heavily scrutinised.

Prima facie the shift implies that corporate lobbies work in India and can bend the government to their interests. Even former Infosys director Mohandas Pai agrees Reddy’s ouster was a “big negative”.

One of the key decisions that Moily has to take is on RIL’s plea to revise gas prices.According to a report in the Economic Times, “Reddy had resisted RIL’s pitch for revision of price of gas from KG-D6 field before 2014 when it is due and refused to accept the energy major’s claims of its investments in the field at their face value.”

In his clash with India’s petrochemical giant, Reddy stood by his view that RIL was hoarding gas by slowing production in its offshore fields in the Krishna-Godavari basin. This, the oil ministry felt, caused a loss of Rs 40,000 crore to companies in the current year while it was Rs 20,000 crore last year.The Reliance-led consortium has said the problems are related to geological complexities. But Reddy had asked arbitrators to look at the matter as he did not want to get into the geological reason of slowing down of gas production and hence resisted the increase in gas price to increase production.

Sources told the Times of India that Reddy’ elicited a “wishy-washy” response from the attorney general as the government sought to resolve the standoff. The minister was, however, in no mood to relent and felt the government should not accept this bailout for RIL. He made it clear that he would not favour any revision till 2014.

Interestingly, Moily has, however, promised to speed up decision making and has set an ambitious target of attracting $50 billion investment in the sector.

With the burden of Reddy’s legacy it remains to be seen to what extent can Moily realise his dream.