In the Niira Radia tapes, there’s this one delicious conversation the PR lady has with lobbyist Ranjan Bhattacharya. It was May 2009, and UPA-II cabinet formation was in full swing. Bhattacharya quotes Reliance Industries’ Mukesh Ambani as telling him, “Haan yaar, you know Ranjan, you’re right, ab toh Congress apni dukaan hai.” Apocryphal or not, that earthy expression of ownership is relevant in the aftermath of the UPA’s recent decision to raise gas prices for five years, starting at a flexible $8.4/mmbtu—conceding a long-standing demand by India’s most powerful business house and its global partner BP.
This must be said because, apart from the Left parties and AIADMK, few even in the political establishment are raising obvious questions about this deal, of which Reliance, the country’s largest private sector gas producer, is the major beneficiary. The whole pricing exercise has been riddled with conflicts between the ministries of power, fertiliser, finance and petroleum; the formula has invited severe criticism; and there’s an attempt by the UPA to airbrush the obvious negative impact of the hike on the common man and taxpayer. Nearly everything will become expensive; or, obviously, the taxpayer will bear these subsidies.
Back-of-the-envelope calculations by Outlook show that the cost of this gas hike on just the power, fertiliser and lpg industries will be in the range of Rs 54,500 crore per annum. Also, the costs of industry in general will go up. “It is a massive loss to the nation. Already, fertiliser prices are soaring. Now, they will be increased again. This is a clear case of placing profit above people,” says Prof K. Nageshwar, an MLC from Andhra Pradesh. On the other hand, aided by a depreciating rupee, gas producers will rake it in. “Every $1 increase in gas price means $73 million profit for Reliance,” says Nageshwar. The irony: gas was meant to be a cheap, green fuel.
Given the token response by the BJP (see box), it appears that the national interest will ignite in the principal opposition party only after 2014. It’s no secret that, considering the growing (and open) corporate support for Narendra Modi, the UPA has made a political bargain by keeping Reliance happy. It is not just political parties that are observing a measured silence. Industry chambers, normally eager to put their point across to the media, were also trying to avoid eye contact. Last week, Modi, who normally draws a full house in his meetings, saw only a handful of prominent industrialists attending his session at a CII conclave in Mumbai.
Finance minister P. Chidambaram and petroleum minister Veerappa Moily have rightly pointed out that currently the public-sector ONGC and OIL dominate gas production. But what they have failed to clarify is who will bear the subsidy burden for the power and fertiliser sectors. Going by the track record of the government, the state-owned exploration companies may well have to pick up the tab. That leaves only Reliance. With global energy giant BP as its partner, there is no telling when the incentivised partners may reverse the drop in production to capitalise on the higher gas prices. “They (Reliance) have been waiting for this announcement for a long time. Production will go up,” says a person associated with Reliance’s D-6 block in the Krishna-Godavari basin, declining to be quoted. “The biggest beneficiary is going to be Reliance—eyes closed.”
Against the committed production of over 70 million metric standard cubic metres per day (mmscmd) at the KG basin, output has been as low as 15 mmscmd. Reliance has been in a high-octane war with the CAG, which has said the company is to be faulted for not complying with agreed investment and development plans. “Our production will go up only in mid 2017-18,” an RIL spokesperson says, seeking to deflate the charge that the price revision was orchestrated to benefit Reliance. In some three years, when Reliance hopes to bring its ‘R’ cluster and satellite fields in the KG basin block into production, the gas price in the country may well have reached $10/mmbtu. The company has made other finds of gas condensates in recent months. The indications are all in Reliance’s favour. It could well emerge as the biggest gas producer in the country unless ONGC can be stirred to monetise its discoveries, including in the KG basin. ONGC and OIL did not respond to Outlook’s queries.
In another instance, the Rangarajan report spells out that the pricing policy should apply only for future investments. In that case, most of the gas being produced in the country currently should not see any change in price. But that distinction has not been kept. The UPA’s selective adoption of proposals, totally ignoring the concerns of its own ministries, defies logic. “The US economy has turned around essentially due to lower gas price. What is the window for India?” asks Anil Razdan, former power secretary.
What is particularly upsetting is the decision to equate domestic gas price with that of imported LNG, which has additional cost burdens of liquefaction, transportation and regassification. This also goes against the panel’s recommendation. But petroleum minister Veerappa Moily has been persuaded to believe that the “import lobby” is behind alleged attempts to scuttle India’s chance to become self-sufficient in oil and gas production.
B.K. Chaturvedi, a member of the Planning Commission, who was on the Rangarajan committee, defends the formula: “As far as the committee is concerned, it stands by its recommendations. The committee was conscious that the government’s contractual commitment under the exploration policy (NELP) had to be honoured; therefore the prices were accordingly recommended.” He does admit that the higher gas price will have bearing on the power and fertiliser costs, so the government will have to find a way to moderate the impact.
Experts are critical of the government assumption that higher gas prices will attract foreign investments, as in the last 10 years, despite pegging crude oil prices to import parity and deregulating all petroleum products, inflow of FDI has been insignificant. “The assumption is based on a false premise. What worries me is that the subsidy bill will be humungous if this price goes through,” says CPI(M) Rajya Sabha member Tapan Sen, who feels let down by fellow parliamentarians. “The opposition should have come a long time back.”
Unfortunately, gas price seems unlikely to be a major issue in the upcoming elections. So far, only Tamil Nadu chief minister Jayalalitha has spoken against the price hike. Says M.R. Venkatesh, a Chennai-based chartered accountant and political analyst, “Like in the case of GST, this should have been discussed with the states, as they would be affected. The decision looks coarse and arbitrary and is likely to be challenged under Article 14 of the Constitution.”
Well, even if the deal is done, it’s the post-hike reluctance to discuss its fallout that is the most worrying. “I don’t see any political fallout caused by this decision because political parties in our country are not vigilant enough,” says K. Keshav Rao, a former Congress Rajya Sabha member who recently joined the TRS. That’s when one wonders if a delay in decision-making is actually better than a wrong one being taken—all in the name of reforms.
Primer: Everything You Need To Know On The Gas Price Rip-Off
What is the gas price all about?
It is natural gas produced within the country; unlike imported liquefied natural gas (LNG). This is viewed as a cheaper and more environment friendly fuel compared to imported crude oil.
Where is this natural gas found?
Both onshore and offshore. Currently Bombay High produces the most gas; Assam, Andhra Pradesh, Gujarat, Rajasthan, Tamil Nadu, Tripura are other states where gas is being produced.
How much gas does India have?
In 2012-13 India produced 47,558 million cubic metres of gas, a drop of 14.5% from the previous year. India’s gas imports have been steadily rising, up to 30% of total consumption last year.
Which companies produce this gas?
The biggest players are state-owned ONGC and OIL, and Reliance Industries Limited (RIL). In addition, there are other players like BP, Niko, Cairn Energy working in various joint ventures.
Who do they supply gas to?
According to government allocation, the first priority is to power and fertiliser plants; then for production of LPG or cooking gas; up next is other industries and city gas including piped gas and CNG.
How will you be affected?
Households are obviously impacted as they are the end-users of power, piped gas and compressed natural gas (CNG); if fertiliser costs go up, agriculture produce is bound to reflect it.
Who will benefit from price hike?
Technically, both public and private sector explorers. As ONGC and OIL pay dividend to government and contribute to subsidy bill, the top beneficiary will be RIL, the biggest private producer.
What impact will the gas price hike have every year on tax payers?
Sources: power, urea, LPG figures based on estimations made by concerned ministries in the CCEA note on gas price hike. Total cost arrived at $ value at Rs 59.
Why the gas price hike doesn’t make sense
How UPA’s Four Petroleum Ministers Have Dealt With The Gas Issue
By Lola Nayar and Arindam Mukherjee in Delhi, Madhavi Tata in Hyderabad
In your cover story The Great Gas Heist (July 15), former power secretary Anil Razdan says, “The US economy has turned around essentially due to lower gas prices. What is the window for India?” It goes to show that bureaucrats don’t understand market forces. The US deregulated the oil and gas market, driving exploration and prompting private oil companies to find innovative methods of increasing wellhead yields. The boom in production brought prices down—competition and classic market forces at work. In India, if market forces don’t work properly, it is because one private company—Reliance—dominates the scene and our psu oil companies are slothful.
M.K. Saini, Delhi
Before liberalisation, the corporates would suck up to political parties; after, in true democratic spirit, parties are sucking up to corporates.
R.V. Subramanian, Gurgaon
I wonder if any party is as corrupt as the Congress under Sonia Gandhi’s leadership.
Vinod Kumar, Delhi
Equating the price of liquefied natural gas with plain natural gas is like saying that a 30 gram packet of Lay’s chips costs Rs 15, so the fair price of potatoes should be Rs 500 a kg.
D.L. Narayan, Vizag
We knew Reliance would benefit the moment Jaipal Reddy was eased out and Veerappa Moily was made oil minister.
A.K. Ghai, Mumbai
India is moving from crony socialism to crony capitalism. My guess is that all societies moving towards capitalism go through this phase. The question is: will we get stuck here?
Arun Maheshwari, Bangalore
Consumer activist Ralph Nader once said Washington DC was a “corporate occupied territory”. The same could be said of New Delhi.
Kangayam R. Narasimhan, Chennai
Congratulations for the service you’ve done the nation by exposing this gas scam.
Manu Kaushik, Delhi
The thieves must go. Please support AAP. There is nothing to choose between Congress and BJP. Congress is directly involved in this case. BJP is probably waiting to come to power to reap it. Or they are not willing to displease Ambani. If not, what is the explanation of their silence?
Reliance refines oil in the largest refinery in the world. The more oil that it refines, the more economical is the price which is afforded to O. N. G. C., the distributor. The amount of crude oil to be imported by India, to be refined at the Reliance Refinery, is increasing at a great pace. It seems, we are paying not for the refining, but for Crude Oil. It appears, that the oil producing nations, will have no choice, but to increase much cheaper imports and at a much lower price. Not that their profits will not increase, and greatly, and I think the Reliance revenues are also increasing. The great unhappiness in politics is, that our govt. within, also has a constituency, and the opposition is as vocal as the govt., in voicing increasing oil cost. For instance, if the C. P. I. (M) was in govt., they would have discontinued, in the govt., also because of the unfair situation that they would have been seen to be less represented in the parliament, and they would be obliged to resign. There must be people in the cabinet, who are more vocal about oil prices, than any other issue.
>>As I say its a tough place to do business. Indian politicians are famous for taking a bribe but offering nothing in return. Reliance is probably old fashioned anyway. What politicians are now interested in is real estate.
I know, sometimes Indian businessmen just wish they made their own Antilla flipping burgers at MacDonalds so politicians won't be able to get their hands on it.
no worries, let's have Peace Tea by Coca Cola :)
all problems are now solved. The Iranians are getting desparate.
Iran asks India to settle all oil payment in rupees: Govt sources
>>>So, are you now saying that "money for lobbying" is what is holding the interest of the pols or you are saying pols don't have any interest in Reliance?
they take corporate money but their primary interest is getting re-elected. If corporates can help them that is fine. But that doesn't mean the corporate always gets its way. Indian politicians are famous for taking a bribe but offering nothing in return. Reliance is probably old fashioned anyway. What politicians are now interested in is real estate.
The Indian politician is also feudal in nature. Say if a corporation offers to fund all the free laptops that the politician is promising. So it happens once, but do you think the politician wants to beholden to the corporation? Not likely
As I say its a tough place to do business. It would be much easier if it was a corporate sponsored oligarchy (like China), as many here seem to believe
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