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 latest News is different what Indian Express reported
"""Narendra Modi govt orders status quo on natural gas prices; $4.2 rate to continue till Sept-end
The Narendra Modi government today postponed revision in natural gas prices by three months pending a comprehensive review.
Oil Minister Dharmendra Pradhan said the current rate of USD 4.2 per million thermal units will continue till September end.
The Centre was expected to decide on implementation of new gas pricing regime in the next two days. A series of discussions have been held between the Prime Minister's office, petroleum minister Dharmendra Pradhan and finance minister Arun Jaitley since Friday.
The government was tight-lipped on the likely proposals it was contemplating to implement. A senior petroleum ministry official, when asked on when the decision is expected, said, “Wait for 48 hours.”
The petroleum ministry is of the opinion that the issue of pricing of gas would need to be seen in the context of achieving the multiple objectives of incentivising domestic gas exploration and production on the supply side and meeting the higher subsidy outgo in successive budgets for the fertiliser and power sectors.''
"" Govt gets firm with RIL, to tell KG oil buyers to deduct $115 m
The Petroleum Ministry has proposed that state-run companies deduct $115 million from payment due to Reliance Industries Limited (RIL) from their purchase of crude oil and natural gas from KG-D6 block and deposit it in a government account. Simultaneously, it plans to issue a fresh notice to RIL on levying an additional penalty of $579 million on account of natural gas production shortfall from KG-D6 block for the financial year 2013-14.
The ministry estimates RIL should not be allowed to recover $1.797 billion towards costs incurred on the block until March 2013 as it produced less natural gas than it had guaranteed while seeking approval for a huge jump in block development expenditure in December 2006.
This reduction in cost recovery by RIL increases government’s share of profit petroleum by $115 million, which the ministry proposes to recover by instructing Chennai Petroleum, Hindustan Petroleum and GAIL India — buyers of KG-D6 crude and gas — to remit their payment directly to a government account.
The tough stand was taken after RIL failed to comply with the ministry’s May 2012 notice, reiterated in February 2014, asking RIL to compute the government’s share of profit petroleum after deducting the disallowed costs.
Documents also say that a notice would be issued to RIL for disallowing $579 million for 2013-14 and directing it to remit an additional $80 million to the government as the latter’s share of profit petroleum for that financial year.
In all, it estimates the total disallowed cost recovery until March 2014 at $2.376 billion that would force RIL to pay back $195 million as profit petroleum to the government for producing less natural gas than it had promised.
The proposal awaits the approval of the minister and would bring to an end the long-dragging penalty proceedings, first initiated in May 2012 when a claim to disallow $1.462 billion for a collective two years (2010-12) was issued. RIL had then invoked arbitration against the notice.
The ministry’s Exploration Division pushed for another notice to RIL that included cost disallowance for 2012-13 but was stopped by former minister M Veerappa Moily, who asked it to first check with the Law Ministry. Former solicitor general Mohan Parasaran’s opinion was that although the matter had been referred for arbitration, there was “no restraint on the government from proceeding in the manner as set out in the first penalty notice of May 2012”.
The Present CAG was under watch that may be not bold one.
BUT CAG TAKE STHE WIND OUT OF ALL THE CRITICS.
CAG slams oil ministry, DGH over KG-D6
The CAG's draft report, sent to the ministry for response, could spark off another round of wrangling between the Reliance-led consortium and the government involving a chest of $1.5 billion.
Sanjay Dutta, TNN | May 29, 2014, 01.18AM IST
NEW DELHI: The Comptroller and Auditor General has slammed the oil ministry and its technical arm for "losing control" over Reliance Industries and failing to check its spending which impacts government revenue in the KG-D6 field off the Andhra coast.
The CAG's draft report, sent to the ministry for response, could spark off another round of wrangling between the Reliance-led consortium and the government involving a chest of $1.5 billion. The 84-page report says the lack of budgetary and financial control exercised by the government and the field's oversight panel left "expenditure open-ended". That is not all. The report says the ministry showed "undue favour" to Reliance in the matter of declaring the D29, D30 and D31 discoveries in the block, including allowing the company to retain area beyond contractual stipulation.
A Reliance spokesperson declined to comment.
There are broadly three clusters of possible dispute in the report: claiming recovery of $160 million incurred on three appraisal wells dug without sanction; raising expenditure by $427 million by continuing exploration work in discovery area beyond permissible time; exceeding estimates on equipment and infrastructure by $523 million and unauthorized payments of 200 euros ($272 million).
The report also mentions expenditures of $16.8 million and $45 million, which look like small change in overall scheme, that are not eligible for cost-recovery. Besides, it lists out cases where expenditure on equipment and infrastructure exceeded estimates by some $523.3 million.
Present oilfield contracts allow companies to recover their investments in a graded manner before sharing revenue with the government. Any unjustified-or excess- investment as well as money spent without approval, adversely impact the government's take.
This is the second time in two years that the ministry has been put in the dock by the federal auditor over its handling of the contract for India's showcase gas field. CAG's first audit report for the field in 2011 had said the ministry extended favours to Reliance and accused the company of contractual violation and ordering equipment and services through "sweetheart" deals.
The second report scrutinizes the accounts of 2010-13 and time and again criticizes the ministry and the Directorate General of Hydrocarbons, the quasi-regulator for exploration, for not enforcing decisions and directives.
The subsequent pages are replete with examples where the ministry and the DGH failed to act even as Reliance supposedly acted at will. In all these examples, the report has said, the costs incurred by the company were not eligible to be recovered from even-----
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?
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