What is wrong with SEBI's treatment of investors?
Moneylife Digital Team 08 August 2012

The market regulator has sent a routine, post-office like acknowledgement, even after writing to its chairman, which ensured that SEBI can wash its hands off any responsibility of responding

It is an open secret that market regulator Securities and Exchange Board of India (SEBI), time and again fails to redress grievances of investors. SEBI thinks every complaint; every mail sent to even its chairman should be replied mechanically. This certainly is the treatment EAS Sarma, former secretary of expenditure, Government of India, received when he wrote to UK Sinha, chairman, SEBI for the second time.


Mr Sarma, in his letter to the SEBI chairman (Mr Sinha) had questioned about non-disclosures by Reliance Industries (RIL) regarding the Krishna Godavari (KG) basin reserves. Earlier in June, Canadian Niko Resources, the joint venture partner of RIL in the KG Basin, startled investors with statement “Reliance Industries’ flagging KG-D6 gas block holds 80% less reserves than previously estimated.”


This material information should have been disclosed by RIL to investors at first moment’s notice. However, it never disclosed the information. While the news made waves in the market, the regulators remained silent. At this time, Mr Sarma wrote a letter to the SEBI chairman and also to secretary, Department of Economic Affairs, asking for the disclosures.


Instead of a proper reply, SEBI sent an automated reply to the former secretary in a tome and language, which ensures that the market regulator could wash its hands off any responsibility of responding.


In its response, SEBI said: “Please note that while the entity (RIL) is directly responsible for redressal of your complaint, SEBI initiates action against recalcitrant entities on the grounds of their unsatisfactory redressal of investor complaints as a whole”.


It also says that if the complaint is not resolved in a ‘responsible’ (sic) period of time, SEBI will keep sending computerised reminders.  It also says, quite hilariously, that the complaint can be viewed on SEBI’s website, http://scores.gov.in (like a work of art?) and that initiation of action by SEBI is not a guarantee that it will be redressed.



Incidentally, this is not the first time that Moneylife has written about Reliance’s patchy disclosures. Earlier we had written about its Annual General Meeting, where RIL did not disclose information on some of its biggest projects. About the KG-D6 project, chairman Mukesh Ambani had said, “We are well on the way to creating a pipeline of projects for our next wave of oil and gas development projects which would include R series discoveries and all the satellite discoveries. Subject to receiving the requisite approvals, we hope to add around 30 (million metric standard cubic metres per day—mmscmd) of additional production through the new wave of planned developments,” whatever this means.


Earlier, RIL had in 2006 stated that output would rise to 80 mmscmd by 2012-13. It also said it would invest $5.2 billion to double the output to achieve the target. After making these rosy predictions, its share price went up from Rs1,264 to a high of Rs1,608. However, natural gas output at KG-D6 fields has dipped to 31.33 mmscmd in June 2012 after hitting a peak of 61.5 mmscmd in June 2010. It hardly touched 80 mmscmd. After that the RIL stock price dropped by about 50% to Rs790. Was Reliance playing around with the numbers and by having wildly optimistic view of the future?


Niko, which holds 10% stake in KG-DWN-98/3 (or KG-D6 block), said the field performance at the D1/D3 fields during 2011 demonstrated “higher than expected pressure draw-downs”. Further, “An assessment of reservoir performance concluded that, contrary to the previous geological model, the current D1/D3 producing wells did not appear to be receiving any contribution from outside the main channel areas,” Niko said in a PTI release.


Coming back to SEBI, it must be noted that the market regulator came into existence with a preamble to protect investors. Unfortunately, investors are vanishing from the markets and everyone in the government is now trying to bring them back through financial literacy seminars and programmes. But looking at the treatment meted out to a very senior bureaucrat by SEBI, few investors left in the markets must be feeling disenchanted.

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