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India’s Largest Company Reliance Stock Dives on Corruption collusion fears with Oil Regulator (DGH),Ministry in Season of Scams

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Investing in the Indian Stock Market is usually a choice  between the Bad and the Ugly as Corporate Governance exists only in name.With the Indian government frozen with its top officials and ministers accused of numerous billion dollar corruption scams,Corporate India too has come under the corruption crosshairs.Note investing in India has always been a dangerous game which I have written probably too many times in this blog.Institutional Money Managers are mostly blind to the risks or plain incompetent most of the times.But now with the global capital in the risk off mode,scams and scandals are again affecting stock prices.Note in the last correction many of the high flying mid cap and small cap stocks had faced heart breaking falls in stock prices.Manipulation by “operators” and company promoters is nothing new.In fact both the Reliance groups have either paid fines or under investigation for massive insider trading.Note the ADAG Group has its 3 top executives in jail for swindling the Indian exchequer out of billions during the 2G Scam.

Now India’s Largest Company Reliance too has seen its stock fall to a post Lehman low on concerns that it has colluded with the Oil Regulator and Ministry to gold plate its costs in the KG 6 Gas concession.Reliance is India’s biggest oil and gas company with interests throughout the supply chain.Note its nothing new as Reliance has always been known to be the most powerful corporate in India .However with the government’s own auditing department CAG raising allegations of collusion and corruption,Reliance too may find itself snared in the corruption scandal.Note the infamous Nira Radia tapes had ample proof of how the powerful Reliance group manages the appointment of its favored persons in key federal ministries.The company must now by hoping that the Supreme Court which is already preoccupied with a ton of corruption cases does not take a keen interest and gets the CBI to investigate the allegations.

The CAG has rapped oil ministry and its technical arm DGH charging it with favouring Reliance Industries, but did not say if the Mukesh Ambani firm overbilled the government when it more than doubled KG-D6 gas field cost and caused loss to state exchequer.The CAG in its draft audit report of KG-D6 block said the ministry and the Directorate General of Hydrocarbons allowed Reliance to raise cost of developing the nation’s largest gas fields by 117 per cent.It said rules were also bent to grant “huge benefits” to Reliance when the ministry allowed the company to retain entire block but said gains cannot be quantified.”The increase in cost from (USD 2.39 billion proposed in the) Initial Development Plan (of May 2004) to (USD 5.196 billion) in the addendum to the Initial Development Plan is likely to have a significant impact on the government of India’s financial take.

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Abhishek Shah

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