Gas Wars: Crony Capitalism And The Ambanis
By Paranjoy Guha Thakurta with Subir Ghosh and Jyotirmoy Chaudhuri
Published by Paranjoy Guha Thakurta (www.gaswars.in) | Pages: 588 | Rs. 695
Former chairman of ONGC, 2001-06
When Raha met the lead author of this book on September 17, 2009, the cancer in his lungs was spreading. His hair had thinned after several rounds of chemotherapy. Still, he was remarkably alert. His words poured out in torrents; he was crystal clear about his convictions and his conclusions. He imposed only one condition before he started talking—he wanted to go through and vet the detailed transcript of the interview before a single word attributed to him was published. The transcript was sent to him, but he never got back. On February 1, 2010, Subir Raha passed away. He was 62.
In the first round of bidding under the new policy, that is, NELP-I, the Reliance group emerged as the winner in most blocks. In an open and transparent bidding process, ONGC lost out to Reliance in the race for a number of blocks. Raha said he had heard that secret information about the ONGC bids had been leaked out, though he could not independently confirm who had done this and for whom. “My guess is as good as yours,” he remarked.
The D6 block in the KG basin had gone to Reliance in 2000. Bidding was done by companies on the basis of certain databases. All investors had access to the same data, thereby offering a level playing field to all. However, additional data could be informally sourced from other companies that were already involved in the business of oil and natural gas exploration. Raha recounted a story he had heard about how data was sourced by Reliance for the KG basin before the company placed its bid. According to this story, Anil Ambani, who was still with his elder brother Mukesh, visited a retired ONGC official in Hyderabad to obtain more knowledge about the KG fields that his company wanted to acquire. The gentlemanly officer unpacked a few old papers from a rusty iron trunk and these documents apparently provided them with crucial clues about the reserves of oil and natural gas that lay beneath the bed of the Bay of Bengal.
Photograph by Jitender Gupta
According to Raha, Anil Ambani (still with his brother then) met an ONGC official about the KG fields.
According to Raha, natural gas is not the only mineral that belongs to the nation. All minerals found in the country are sovereign properties. As far as India is concerned, Raha pointed out that each minister in the government takes an oath of office when he is sworn in, and part of that oath is that he will act in a way that is fair to all the people of India. It is, therefore, the duty of each minister to protect the sovereign rights of the country. A classic example of privatisation of mineral resources in India, he pointed out, was that of Bharat Aluminium Company Ltd (BALCO), the PSU engaged in the production of aluminium.
Till 2001, BALCO used to be a PSU with 100 per cent of its shares owned by the government of India. That year, BALCO was privatised—the government sold off 51 per cent of the shares of the PSU to Sterlite Industries (India) Ltd, which is now part of the Vedanta group headed by Anil Agarwal. In the process, the government privatised the biggest reserves of commercially available bauxite in the country without undertaking a proper independent valuation of the mineral resources that would accrue to the private company. There is no difference between bauxite and gas, or for that matter coal or dolomite, as far as their sovereignty is concerned, he emphasised.
This is where the issue of the PSC (Production Sharing Contract) crops up all over again. Raha said the responsibility for the controversy over KG gas rests squarely with the mopng. The ministry is the custodian of the NELP (New Exploration Licensing Policy) and the contracts that flow from the policy, and if the ministry had truly abided by the NELP and the PSCS signed in letter and in spirit, legal disputes could easily have been avoided, he argued. What Raha suggested, though not in so many words, was that the problems over pricing and allocation of KG gas was created because the mopng and the government of India through the EGOM headed by Pranab Mukherjee, directly or indirectly, sought to benefit one private party, in this case, RIL.
Mani Shankar Aiyar
Petroleum minister, 2004-06
More than two years and eight months after he was suddenly and ignominiously removed, Mani Shankar Aiyar gave an extraordinarily detailed and hard-hitting speech about the controversy relating to the pricing and allotment of natural gas from the Krishna-Godavari basin. He referred to the tussle between the Ambani siblings and left nobody in doubt that the government’s role in the entire episode was questionable, if not downright dubious.
On 26 September 2009, Aiyar, known for his gift of the gab, was at his wittiest best speaking to a small group behind closed doors. For instance, when he referred to how the price of gas had been increased by the EGOM from $2.34 per mBtu to $4.20 per mBtu, he quipped, tongue in cheek, on the number 420; for the uninitiated, Section 420 of the Indian Penal Code relates to cheating and fraud, and provides for punishment of the convicted.
Aiyar’s speech was delivered shortly after noon (the meeting was conducted under the aegis of the ‘Saturday Lunch Club’ in New Delhi’s India International Centre). An interesting aspect of the speeches made at the Saturday Lunch Club is that these are largely governed by the ‘Chatham House’ rule that ensures confidentiality of the source of information received at a meeting.
In his talk, Aiyar explained how the NELP framework was ‘dramatically altered’ by the government....
Aiyar’s talk was simply titled ‘Gas Pricing’ and lasted for about half an hour. Hailing the discovery of gas by RIL in the KG basin as an important breakthrough for the country, Aiyar said that in an era when global gas prices had skyrocketed he was hopeful a lot of foreign exchange could be saved even as the country could become self-sufficient in gas. The former petroleum minister then explained how the NELP framework was ‘dramatically altered’ by the government in a manner that ran ‘in stark contrast to what was once expected of the direction of economic reforms’. Aiyar’s next few sentences were sharp:
“No minimum selling price was earlier stipulated; on 12 September (2009), the Empowered Group of Ministers determined a minimum selling price of $4.20 (that is emphatically not a pun on the nature of the decision!): that price applies retroactively to PSCS entered into since 2000. It is almost double the NTPC/RIL price discovery of 2002. It would appear that the $4.20 stipulation relates both to valuation and selling price (or at least, minimum selling price). This minimum selling price provision is backed up by a list of priorities which places fertiliser ahead of power (and is, therefore, detrimental to Anil’s interests, especially as the gas allocations pre-empt all of present gas production for consumers already in operation and privilege the public sector)....”
Aiyar said that while earlier PSCS provided that the government reserved to itself the right to refer pricing issues to the proposed Petroleum and Natural Gas Regulatory Board when no such board existed:
“Now that such a board has been constituted, the new PSC drops all reference to the board and essentially reserves to the government the right to unilaterally decide all matters pertaining to pricing. Does this constitute a reversal of reforms? More to the point, will this discourage future private sector investors from entering the Indian petroleum exploration and development market?.... Also, should government interventions be aimed at raising prices for sellers or at keeping prices down for consumers? This appears to be the first case of a government fiat, resulting in consumers being asked to pay more for an essential commodity than might have been available from price indications in the marketplace.”
When contacted by the lead author of this book, Aiyar refused to either confirm or deny what was attributed to him. He cited the famous Chatham House rules and said he could not speak on the topic.