In 2009, Jairam Ramesh, the Minister of Power in a written reply to a question in Lok Sabha, stated “After issuance of the letter of intent, RIL did not come forward to sign the Gas Sale and Purchase Agreement (GSPA) and sought major changes in the draft GSPA. In spite of all the efforts by National Thermal Power Corporation Limited , RIL did not sign the GSPA agreed during the bidding process.”
On December 20, 2005, National Thermal Power Corporation Limited dragged Reliance to court, but the case has become another one that has just dragged on for years.
The Government of India, under which National Thermal Power Corporation Limited falls, as a Navratna, has been hitting its foot with spades. While NTPC was fighting the case with Reliance in the Bombay High Court, the government referred the matter to an Empowered Group of Ministers (EGoM) in 2007 headed by none other than the current President Pranab Mukherjee, who was then the finance minister. This EGoM approved a rate hike of $4.2 per million metric British thermal units of gas. This decision was taken without a single unit of gas coming out of the KG basin. Reliance took cognizance of this opportunity and said that it could not supply gas at a price lower than the mandated price set by the government. This begs the following questions –
1. How did Pranab Mukherjee arrive at the price of $4.2 per million metric British thermal units for gas?
This is where the mystery deepens. The price was decided by a formula called the “price discovery mechanism.” According to this mechanism, crafted by Reliance, the user companies were invited to quote a price, the choice being between $4.54 to $4.75 per million metric British thermal units.
After this process, Reliance put forward a price of $4.59 per million metric British thermal units, later brought down to $4.30. Pranab Mukherjee negotiated and settled it at $4.20 per million metric British thermal units and claimed that he’s negotiated the best deal there could be.
This whole exercise was done even though there were objections from across sectors, including objections raised by the Principal Advisor, Power and Energy to the government of India, Surya P Sethi along with the then cabinet secretary. Each and all of these were conveniently ignored by the Government and the EGoM. Surya P Sethi objected to the whole proposal, saying that nowhere in the world is the cost of production more than $1.43 per million metric British thermal units, then why should Reliance be allowed this exorbitant price.
2. Is it exploration or exploitation?
Comptroller and Auditor General (CAG) report on the KG Basin came down heavily on the Oil Ministry along with Reliance on its decision to retain the entire KG-D6 block against the suggestions of the Public Service Commission. As per the Public Service Commission (PSC), Reliance should have relinquished 25 percent of the total area outside the discoveries in 2004 and 2005, but the entire area was declared as a discovery area (after initial objections) and the company was allowed to retain it. Without drilling adequate wells, Reliance kept on claiming that there was potential for petroleum.
In Comptroller and Auditor General (CAG)’s words, “This was done to confuse potential/prospectively with actual discovery of hydrocarbons.”
By doing this, Reliance kept the entire area to itself without following the rules laid under the PSC.
As per the Comptroller and Auditor General (CAG) report, “Reliance moved directly from discovery to commercial production, skipping the intermediate appraisal programme step required under PSC.” Furthermore, Comptroller and Auditor General (CAG) asked, “Without an appraisal programme how did the government and DGH ascertain the amount of gas in the well? And if they did not know how much gas was there in the well, what is the logic and basis of blaming Reliance of hoarding gas.”Further in the report, Comptroller and Auditor General (CAG) continues, “How did DGH assure itself of the reliability of the development plan, production rate and production costs without the appraisal report?”
These questions by the Comptroller and Auditor General (CAG) still begs answers, and the ones with the answer are eerily silent on the issue.
3. Why would more investments be a further detriment to the interests of the nation?
Comptroller and Auditor General (CAG) points out that, “As per the PSC, more investments, especially in initial stages would mean more profit for the operator and less for the government. This structure gives inadequate incentive for operators to reduce capital expenditure and provides them with substantial incentives to ‘front-end’ capital expenditure. A share of government profit varies from 85 percent in a low investment scenario to 5 percent in a high investment scenario.”
As V Ranganathan of IIM Bangalore points out in his article in Economic Times, “The case of exaggerated investment was first pointed out by Anil Ambani, where he pointed out that investment as per Reliance’s plan is increasing four times but production is expected to only double.”
This explains the case of an exaggerated investment made against Reliance Industries. Ignoring all the rhetoric, Reliance still went ahead and revised its production estimates from 40 mmscmd (million metric standard cubic metres per day) to 80 mmscmd while increasing its investment from $2.4 billion to $8.8 billion, and again, nobody batted an eyelid.
3.1 How was the new pricing formula arrived at?
Former RBI governor, C Rangarajan, who presided over RBI from 1992 to 1997, came out with a formula which, even though hasn’t been anywhere in the world, was used by Reliance (and other players too) to get a price on import parity basis. Surya Sethi, former Principal Adviser, Power and Energy, Government of India, came out emphatically against the decision and asked the then Prime Minister in an open letter, “Not to burden the nation with Rangarajan Committee’s madness that only benefitted a select few.”
The open letter to the Prime Minister actually rounds up the entire issue. Crony capitalism has benefited RIL like no one ever has seen in the years since independence. The Comptroller and Auditor General (CAG)’s findings put an emphatic stamp of approval on how the pre-qualification norms were diluted to ensure RIL qualified, the claimed size of gas discoveries, the field development plans and the investment outlays proposed escaped rigorous due diligence, as pointed out by the cabinet secretary.
Not only that, the company’s commitments under the Public Service Commission on gas output were not enforced. The entire episode stinks of anything but natural gas. While Veerappa Moily may claim that a due process was followed in awarding the basin, there’s enough evidence out there that says otherwise.
As of right now, the Krishna Godavari Basin has been taken over by a mix of Anglo-Indian companies, which use Reliance as a front. These companies take advantage of the fact that the transportation costs of the gas produced in India is among the lowest in the world and yet don’t pass on the benefit of the same to Indian consumers. They continue to stress that the price Indians have to pay for their own natural resource should be equivalent to the prices quoted in London. It costs only about 130 INR to supply gas from KG Basin, roughly around $2, yet we have to pay 250 INR, i.e. $4, due to international pricing. The situation is the same for the oil and gas discovered and currently exploited in Rajasthan. This is a classic example of nothing but international robbery. RIL also raised the prices by reducing gas output from KG basin.
The gap in actual and what should be has led to increases in food prices, equipment prices, subsidies for the domestic oil industry and agricultural input costs. All this has made the life of the common man miserable by taking everything they earned and putting it into the pockets of oil companies.
Oil price really linked to demand and supply?
On the other hand It is the greed of these international private companies that are the root cause of the rise in oil and natural gas prices. It is the same companies that killed every alternate energy production like solar, energy from municipal waste, agricultural waste etc. India produces close to 1000000 engineers of various fields and capable to produce enough alternate energy sources that cost less than petrol or diesel but still environmentally and ecologically friendly. We are the first country to create unlimited energy extraction from thorium, a safe cheap free energy source from sands of Indian coastal areas, and a good substitute for nuclear energy. But that research is being killed for expensive and dangerous nuclear energy as all the technology was to be imported by the west.
As Alex Mathews, Head of Research, Geojit BNP Paribas Financial Services says, “if oil prices were lower, it would encourage people to buy more vehicles, would lower current deficit and bring down inflation. This, in turn, would cause the RBI to lower interest rates, triggering further demand. Of course, that’s exactly what these foreign multinational companies don’t need, a stronger and more prosperous India.”
Young Indian engineers pioneered the techniques to create Organic Manure, Biofertilizer, Electricity and Compressed Methane to run cars instead of CNG using municipal waste, cattle and poultry waste and created employment in local communities for qualified engineers and other graduates. Why no one encourages this system?
The cost of setting up oil refiners and other transport mechanisms could easily set up two energy-producing multi-utility plants per month. At the end of the year, those 24 plants will go a long way in helping many farmers by providing employment and creating own energy supply sources.
It is important to realize that by helping the local communities create new clean energy, fertilizer, and compressed biogas at every manual level, we can create a better tomorrow. It is time we start encouraging and funding our own engineering college students who are working on alternate cheap energy sources. It is time to look at our energy policy and our youth and help them take a lead in it. It is time we take responsibility in creating new energy management systems rather than going into a cycle of debt just for oil speculation.
It’s time for us to wake up, walk and change how India sees its energy scenario. It’s time we start funding our own projects and look elsewhere other than oil. The recent statements by the Transport Minister about the future of electric cars is a welcome step, but let’s power it using our own natural sources rather than getting dependent on outside sources and these multinational corporations.
“We should not be paying for our own national resources, least pay an exorbitant price for them.”
– YS Rajashekar Reddy
A case of no elephant in this sentence?
It is in common knowledge that the erstwhile Chief Minister of Andhra Pradesh, YS Rajasekhar Reddy, had strong reservations with the pricing mechanism being applied for the gas that was extracted from KG Basin. What also catches the eye is that Reddy didn’t survive long after that, dying in a mysterious helicopter crash that had so many red flags that no other helicopter would take off in similar circumstances.
The roots of the issue took hold in 2006, when YSR in a rally said, “Gas is a natural resource, a property of the nation, not of a private company. It is for the government to decide who should get the gas, and also, at what price”
The dispute over sharing of gas wasn’t settled by mother, Kokilaben Ambani when there was a dispute between both Ambani brothers regarding the distribution of assets after the death of the founder and their father, Dhirubhai Ambani, and their mother, in turn, acted as the mediator between the brothers.
He also asked for at least 10% of the gas allocation for the industrial development of Andhra Pradesh. Reddy even composed a letter to the Prime Minister Manmohan Singh, encouraging him to shield the Centre’s entitlement to distribute assets, and communicating fears that a dispute between the Mukesh-run Reliance Industries Ltd (RIL) and Anil-driven Reliance Natural Resources Ltd (RNRL) could hurt shoppers.
Not just that, YSR additionally set up the Andhra Pradesh Gas Infrastructure Corporation to offer for the NELP squares and raid into the gas investigation, putting the state government in rivalry with the Ambani’s. This was in sharp difference to his predecessors.
It’s also said that Ambani attempted to pressurized him through 10 Janpath course, yet he demonstrated a centre finger to the two. Sources say that this connivance additionally has the contribution of professional TDP media noble Ramoji Rao’s Eenadu.
On second September 2009, Chief Minister Y S Rajasekhara Reddy’s crash landed on the Rudrakonda slope in the Nallamala woods. But the question is was it an accident or a planned assassination. The predicament is why the helicopter was replaced by a faulty helicopter just a few minutes before the takeoff, without informing the concerned parties. Furthermore why a flawed air ship with a pilot who as of now had issues in controlling the aircraft had been given to the CM. Then again for what reason didn’t the helicopter raised its height over 5500 feet altitude even subsequent to confronting poor climatic conditions, where the air ceiling capacity was 14000- 15000 feet altitude. Apparently, there wasn’t any chaos in the helicopter before the crash, recorded by CVR ( Black box ) which is an extremely speculative circumstance as a general rule.
Apart from this the news which captivates the vision is about a Russian journal publishing the mysterious death of YSR. Why a country miles away is interested in an Indian political affair where India itself isn’t bothered about it.