Who’ll Turn Off The Gas?

Anil Ambani: Swinging public opinion Has let lose a media blitz to put the government on the defensive in Parliament, seeks to raise concerns around the neutrality of state policy.

The government: National interest? Faces serious credibility issues at a time when it seeks to bat for the national interest; has battened down the hatches and PMO is now overseeing.

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The A-Teams

The key strategists and players driving the battle over K-G gas

Mukesh Ambani, RIL

• Anand Jain, Chairman, Jai Corp He’s away from the limelight, but remains the key advisor for innovative solutions.
• Nikhil Meswani, Executive Director, RIL Completely loyal and a relative, Meswani is a crucial filter for Mukesh.
• Manoj Modi, Director, RIL The quintessential backroom boy, Modi is the key trouble-shooter for the team.
• P.M.S. Prasad, CEO, RIL Oil and Gas Considered a top-notch professional in the oil and gas field, has good networking skills.
• Niira Radia, Neucom This powerful PR lady sets strategy for the group’s media and lobbying cells.

Anil Ambani, ADAG

• Amitabh Jhunjunwala, Vice-Chairman, Rel Capital Anil largely drives solo but low-profile Jhunjhunwala is a key sounding board.
• Amar Singh, SP Anil’s friend and ally, instrumental in stepping up the heat in Parliament.
• A.N. Sethuraman, Group Prez, Corp Affairs This old Reliance hand is a key and persuasive lobbyist within the government.
• J.P. Chalsani, CEO, Rel Power Ex-technocrat, excels in contractual matters and shapes the group’s energy plans.
• Tony Jesudasan, Group President Well connected, this veteran background briefer drives the battle in the media.

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It brings back memories of the early days of the 2005 battle between the Ambani brothers, when fax machines in newspaper offices would spit out yet another set of secret documents late every evening. Over the past week, Anil Ambani has been ratcheting up similar pressure on the dispute over the supply of natural gas from the Krishna-Godavari (KG) basin. Every other day, through a media blitz, there’s a fresh accusation from his group, ADAG. But the target remains the same—petroleum minister Murli Deora, who Anil says is playing favourites with elder brother Mukesh in the name of national interest.

Though Deora, an old friend of Dhirubhai Ambani, has sought to dispel the notion through a statement in Parliament, ripples are being felt in government corridors. Anil’s timing is obvious: the government has recently become a third party to the tussle for KG gas, and seeks to nullify the gas sale pact between the Ambani brothers through a Special Leave Petition (SLP) in the Supreme Court. In the run-up to the case hearing on September 1, Anil has raised many uncomfortable questions—targeting the neutrality of policies over gas utilisation (which allocates gas between sectors), setting the gas price, and transparency in protecting state profit from Reliance’s D6 block.

Not surprisingly, it’s become a political hot potato. Opposition parties, and even sections within the government, have criticised the petroleum ministry’s action in the case. Far from being satisfied by Deora’s statement, many opposition parties have urged the government to protect national interest, even if it means cancelling the production-sharing contract (PSC) on D6 block with Reliance Industries. This option has been adopted by many countries the world over—but it would be a dramatic step in India and could lead to a backlash on its oil and gas exploration efforts.

There’s obviously a lot at stake, which is why the government has battened down the hatches. The PMO is closely monitoring the situation. Fortunately for Deora, his efforts to cement the breach with counterparts in the ministries of law and finance have yielded the desired results. Closing ranks, the Congress has given the law ministry the mandate to chart the course ahead. The law ministry is now carefully vetting changes in the SLP—submitted to the SC without its approval in the first instance. “This is an explosive issue,” avers a senior law ministry official, declining comment.

Additional solicitor general Mohan Parasaran, who is representing the government in the Supreme Court, explains, “The law ministry has not been ignored, actually. While filing the actual SLP, we (the government) went directly to the apex court because that was allowed by the law ministry while the matter was in the Bombay HC.” Since then, in consultations with other ministries, the SLP is being reworked to iron out “certain technical points that could be raised before the apex court”.

Clarifying the government stand, Parasaran says the “government is in no way concerned about the private dispute of RIL and RNRL. The government is only seeking to establish that no private arrangement or MoU can seek to override its gas utilisation policy.” The revised SLP will have “some changes in the regulation and distribution policy”, he added.

It is interesting that in this entire hullabaloo, the person at the centre of the storm—Mukesh Ambani of RIL—has maintained a studied silence since seeking a Supreme Court review of the Bombay HC decision in favour of Anil on June 15. The fact is, given the many conflicting interests in this case, the very concept of national interest has entered a grey area. Is Anil then justified in his allegation that in the guise of national interest the petroleum ministry is helping Mukesh Ambani to back out of the commitment to supply gas to not just Anil’s Reliance Natural (RNRL) but also state-owned NTPC at $2.34 per million Btu? The answers are not that simple.

For one, despite pressure from the power ministry, the petroleum ministry has not been proactive on the NTPC claim that RIL honour the letter of intent it had signed for supply of 12 mmscmd gas for 17 years at $2.34 mBtu. “If RIL had not quoted that price (through international bidding), the 2,600 MW power capacity (for the Kawas and Gandhar projects) would have been operational by now,” says an NTPC spokesperson.

On the price issue also, the government action is seen by experts as favouring RIL. Official sources point out that while RIL’s gas price has been fixed at $4.2 mBtu, the average price of domestically produced gas is below $4 mBtu. It’s only imported gas, bought through spot purchase, which currently costs $4-5 mBtu. Energy expert and ex-petroleum secretary T.N.R. Rao says “it actually looks like the government is helping RIL to back out of its commitments”. Similarly, former petroleum secretary S.C Tripathi is puzzled why—contrary to PSC terms— the government is “interested in fixing the gas price and telling who to sell it to. Why is the government-appointed Petroleum and Natural Gas Regulatory Board not being made effective as in the case of telecom and power?”

On the issue of funds invested by RIL in the KG basin, the PM’s economic advisory panel and the committee of secretaries too have over the last two years raised similar concerns and urged proper scrutiny of accounts and greater transparency. Here again the government seems to have erred. The latest move of the petroleum ministry to get the Directorate General of Hydrocarbons (DGH) to justify the almost 300 per cent rise in RIL’s expenditure on development of oil wells on KG D6 block from $2 billion to $8.8 billion has backfired. “The scam that has gone unnoticed is the way in which the government has allowed a small committee under DGH to hike the development charge, a giveaway of Rs 30,000 crore,” says public interest lawyer Prashant Bhushan.

Of the three parties that are supposed to have conducted the audits, two have links with RIL, says ADAG. The third party is the government watchdog, the Comptroller and Auditor General of India (CAG), which categorically denies having given a clean chit to RIL. “The p&ng ministry requested the CAG to conduct the audit of exploration wells on the D6 block. We have started the process but it is not complete as the documents needed from the contractor (RIL) are not available to us to verify,” a senior CAG official told Outlook.

And the issue of higher investment is not merely a ‘gold-plating’ attempt, as alleged by ADAG. Unlike ‘gold-plating’ which helps companies evade some of the tax liability, in this instance a 300 per cent increase in investments “could mean pushing back the government share of ‘profit gas’ by several years”, till the contractor has recovered the costs, points out Tripathi.

The government would have to rework its strategy to get some decent share of the profit gas. This is despite a higher price being fixed by the government for RIL’s gas, which could help the company recoup its capital expenditure faster. As an energy expert points out, “When the government talks about getting returns from the KG basin right at the onset, it is mere ‘paper profits’, which will shrink if the expenditure rises.” In fact, experts warn that unless the government puts in place proper systems for scrutiny “the country will be taken for a royal ride”.

Whatever direction the Supreme Court case takes, government tardiness has resulted in a situation where the national interest will be the casualty. This is because too many loopholes have been left in the PSC, which is patterned on the traditional sharecroppers’ agreement—where the zamindar took a fee and share of profits but did not interfere in the produce sale. If the government were truly serious about protecting national oil and gas wealth, it would do well to ensure proper audit and transparency, and provide regulators greater powers to enforce rules. And not tweak rules on a case-by-case basis, a sure way to invite charges of playing godfather to select corporates.