the great gas heist _ lola nayar, arindam mukherjee, madhavi tata

7/30/2019 The Great Gas Heist _ Lola Nayar, Arindam Mukherjee, Madhavi Tata

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Great Gas Heist | Lola Nayar, Arindam Mukherjee, Madhavi Tata http://www.outlookindia.com/article.aspx?286692

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Bartering Indias

interests to thecorporate world, thedamage they havedone is

unfathomable. D.A.Somayajulu, Member,

YSR CongressGoverning Council

Its done PM Manmohan Singh with Mukesh Ambani. (Photograph by J itender Gupta)

RELIANCE

The Great Gas HeistOne beneficiary, clear and corporate. How the UPA played for political positioning.

LOLA NAYAR, ARINDAM MUKHERJ EE, MADHAVI TATA

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In the Niira Radia tapes, theres this one delicious conversation the PR lady has with lobbyistRanjan 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, youre right, ab toh Congress apni dukaan hai. Apocryphal or not, that earthyexpression of ownership is relevant in the aftermath of the UPAs recent decision to raise gas

prices for five years, starting at a flexible $8.4/mmbtuconceding a long-standing demand byIndias 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 countryslargest 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 theres an attempt by the UPA to airbrush theobvious negative impact of the hike on the common man and taxpayer. Nearly everything willbecome 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 thepower, 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, fertiliserprices 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 acheap, green fuel.

Theres also a political brazenness to the timing. A decision

slated for April 2014 has been announced a good ten monthsbefore, neatly sidestepping an election code of conduct andbuying the support of a crucial corporate. Given that AIADMK

has said that it would review the deal if a coalition it is part ofcomes to power, this pre-emptive pricing takes the decision outof the hands of (potentially, of course) an unreliable Third Frontcoalition. With elections around, whod want to upset a major

source of funding? says a political analyst.

Given the token response by the BJ P (see box), it appears thatthe national interest will ignite in the principal opposition party

only after 2014. Its no secret that, considering the growing (andopen) corporate support for Narendra Modi, the UPA has made

a political bargain by keeping Reliance happy. It is not justpolitical parties that are observing a measured silence. Industrychambers, 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 industrialistsattending his session at a CII conclave in Mumbai.

Finance minister P. Chidambaram and petroleum minister Veerappa Moily have rightly pointedout that currently the public-sector ONGC and OIL dominate gas production. But what theyhave 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 tocapitalise 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 Reliances D-6 block in

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The cost of powerand fertiliser will goup, so thegovernment willhave to moderatethe impact. B.K.Chaturvedi, Member,Planning Commission

Like with GST, thisshould have beendiscussed with the

states. The decisionseems coarse,arbitrary. M.R.Venkatesh, CA AndPolitical Analyst,Chennai

the Krishna-Godavari basin, declining to be quoted. The biggest beneficiary is going to be

Relianceeyes 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 ahigh-octane war with the CAG, which has said the company is to be faulted for not complyingwith 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 wasorchestrated to benefit Reliance. In some three years, when Reliance hopes to bring its Rcluster 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 inrecent months. The indications are all in Reliances favour. It could well emerge as the biggestgas producer in the country unless ONGC can be stirred to monetise its discoveries, includingin the KG basin. ONGC and OIL did not respond to Outlooks queries.

The government habit of selective picking of recommendations,

including from the Rangarajan committee report, has come infor criticism. The new formula (cherry-picked from the report,

and approved for 2014-19) is, to put it simply, based on theaverage of European nbp, Henry Hub of US and J apans import

gas price plus the average of Indian gas import price. Theformula is unique to India: no other gas-producing country hasdevised such a convoluted way to reward exploration

companies. Moreover, the government has deviated from thecommittees recommendation of a monthly review, insteadopting for quarterly revisions. Thus, the revised price of $8.4per mmbtu put out by the government is merely an indicative

price.

In another instance, the Rangarajan report spells out that thepricing policy should apply only for future investments. In that

case, most of the gas being produced in the country currentlyshould not see any change in price. But that distinction has not been kept. The UPAs selectiveadoption 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 importedLNG, which has additional cost burdens of liquefaction, transportation and regassification. Thisalso goes against the panels recommendation. But petroleum minister Veerappa Moily has

been persuaded to believe that the import lobby is behind alleged attempts to scuttle Indiaschance 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 itsrecommendations. The committee was conscious that the governments contractualcommitment under the exploration policy (NELP) had to be honoured; therefore the prices wereaccordingly 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.

The state government-owned Gujarat State PetroleumCorporation (GSPC) is another likely beneficiaryit has also

been seeking a higher price to make production from its K-Gbasin block viable. At the same time, D.J . Pandian, chairman of

gspc says, Even though gspc stands to benefit as an upstreamcompany, we will be put to great hardship as power producers,

for it will add Rs 2 per unit to our cost. Given that a large chunk

of power goes to agriculture and industry, the hike in powertariff will hurt end-users.

Experts are critical of the government assumption that highergas prices will attract foreign investments, as in the last 10

years, despite pegging crude oil prices to import parity andderegulating all petroleum products, inflow of FDI has beeninsignificant. The assumption is based on a false premise.

What worries me is that the subsidy bill will be humungous ifthis price goes through, says CPI(M) Rajya Sabha member

Tapan Sen, who feels let down by fellow parliamentarians. Theopposition 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 J ayalalitha 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, its the post-hike reluctance to discuss its fallout that is the mostworrying. I dont see any political fallout caused by this decision because political parties in ourcountry are not vigilant enough, says K. Keshav Rao, a former Congress Rajya Sabha

member who recently joined the TRS. Thats when one wonders if a delay in decision-makingis actually better than a wrong one being takenall 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




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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 theprevious year. Indias gas imports have been steadily rising, up to 30% of total consumptionlast year.

Which companies produce this gas?

The biggest players are state-owned ONGC and OIL, and Reliance Industries Limited (RIL). Inaddition, 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 gasand CNG.

How will you be affected?Households are obviously impacted as they are the end-users of power, piped gas andcompressed natural gas (CNG); if fertiliser costs go up, agriculture produce is bound to reflectit.

Who will benefit from pri ce hike?

Technically, both public and private sector explorers. As ONGC and OIL pay dividend togovernment and contribute to subsidy bill, the top beneficiary will be RIL, the biggest private

producer.

What impact will the gas price hik e have every year on tax payers?

Power plants: Rs 46,360 crore p.a.

Urea production: Rs 3,155 crore p.a.LPG production: Rs 1,620 crore p.a.

Total: Rs 51,135 crore p.a.At cur rent $ pri ces: Rs 54,500 crore*

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.

***

Inverted Logic

Why the gas price hike doesnt make sense

Government View Counter View

Need to attract foreign investment Import parity price for crude oil in past 10 years has

failed to woo big foreign investors

Will help to improve domesticproduction of oil and gas

The hike with prospective effect comes even asgas production has been slipping in recent years

Public sector companies like ONGC

and Oil India Limited will be biggerbeneficiaries

PSUs pay government huge dividends, also share

part of subsidies: moreover, PSU gas productionhas hit a plateau

Will subsidise gas for power and

fertiliser sector.

Reversing the efforts to cut down subsidies would

put fiscal prudence at risk

Government will earn more through

profit and royalties

Sure it will earn more but only lose it through

additional subsidy burden

***

How UPAs Four Petroleum Ministers Have Dealt With The Gas Issue

Mani Shankar Aiyar, May2004-Jan 2006 Shunted out forkeeping the Ambani brothers, then

together, at arms length. Aiyar,

however, also did his best to getONGC to focus more on improving

domestic oil and gas production.

Murli Deora, Jan 2006-Jan2011 Known as Uncle to theAmbani brothers, he pitched

for Mukesh in the legal fight

with brother Anil. In theprocess, he changed the

provision for market-determined gas prices.

S. Jaipal Reddy, Jan 2011-Oct

2012 Took unprecedenteddecision of not allowing Reliance

to recover $1bn cost incurred onunutilised infrastructure. Paid fornot permitting early review of gas

price: he was unceremoniously moved.

M. Veerappa Moily, Sin ce

Oct 2012 After famouslyblaming import lobbies, the

minister granted Reliancesdemand for high gas prices,ignoring the concerns of

power, fertiliser industries and impact onconsumers.

By Lola Nayar and Arindam Mukherjee in Delhi, Madhavi Tata in Hyderabad

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FILED IN:AUTHORS: LOLA NAYAR | ARINDAM MUKHERJEE | MADHAVI TATAPEOPLE: MUKESH AMBANI

TAGS: OIL-GAS-FUEL | OIL-GAS-FUEL PRICES | RELIANCE INDUSTRIES | UPASECTION: NATIONALSUBSECTION: COVER STORIES

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ALSO IN THIS STORYRELIANCE

Lips And Purse-stringsMoney talks; it also gags. A 2014-fixated BJ Ps muteness on the gas-pricing issue provesthat.ANURADHA RAMAN, PRARTHNA GAHILOTE

JUMP CUT

A Wellhead Of BlundersWhy did our market-friendly policymakers revert to the much-malignedadministered price only for gas, while batting for market prices for all else?

T.N.R. RAO

RELIANCE

Reliable AttitudesYSRs long fight for a share of KG basin gasMADHAVI TATA

JUMP CUT

Self-Reliance, Not RelianceWhat we see now is a new and indigenous form of McCarthyism.MOHAN GURUSWAMY

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HAVE YOUR SAY | READ ALL 56 COMMENTS

56/D-43J UL 13, 2013

09:10 AM

Reliance refines oil in the largest refinery in the world. The more oilthat 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 byIndia, 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. Itappears, that the oil producing nations, will have no choice, but toincrease much cheaper imports and at a much lower price. Not thattheir profits will not increase, and greatly, and I think the Reliancerevenues 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 theC. P. I. (M) was in govt., they would have discontinued, in the govt.,

also because of the unfair situation that they would have been seento be less represented in the parliament, and they would be obliged

to resign. There must be people in the cabinet, who are more vocalabout oil prices, than any other issue.

ADITYA MOOKERJ EEBELGAUM, INDIA

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55/D-20J UL 12, 2013

05:10 AM

>>As I say its a tough place to do business. Indian politicians arefamous for taking a bribe but offering nothing in return. Reliance isprobably old fashioned anyway. What politicians are now interestedin is real estate.

I know, sometimes Indian businessmen just wish they made their

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Sandeep Kathe Norwalk, Connecticut

Seems UPA ( with help from BJP) have now started open loot instead of hidden scandals .

Reply Like Saturday at 11:34am

Lenin Kispotta KIIT +2 SCIENCE COLLEGE

MAN ! how is this possible...and where is BJP....??? looting

Reply Like Saturday at 9:50am




6/7

own Antilla flipping burgers at MacDonalds so politicians won't beable to get their hands on it.

no worries, let's have Peace Tea by Coca Cola :)

http://www.bevreview.com/2013/03/18/review-peace-tea-razzleberry-tea/

HITESH BRAHMBHATTSAN DIEGO, UNITED STATES


54/D-145J UL 11, 2013

10:56 PM

:lol:

all problems are now solved. The Iranians are getting desparate.

Iran asks India to settle all oil payment in rupees: Govt sources

http://timesofindia.indiatimes.com/business/india-business/Iran-

asks-India-to-settle-all-oil-payment-in-rupees-Govt-sources/articleshow/21023851.cms

MK SAINIDELHI, INDIA


53/D-143J UL 11, 2013

10:32 PM

#52

>>>So, are you now saying that "money for lobbying" is what isholding the interest of the pols or you are saying pols don't have anyinterest in Reliance?

they take corporate money but their primary interest is gettingre-elected. If corporates can help them that is fine. But that doesn'tmean the corporate always gets its way. Indian politicians are famousfor 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 ithappens once, but do you think the politician wants to beholden tothe corporation? Not likely

As I say its a tough place to do business. It would be much easier ifit was a corporate sponsored oligarchy (like China), as many here

seem to believe

MK SAINIDELHI, INDIA


52/D-141J UL 11, 2013

10:15 PM

#50

>>Their goal is to get elected by pandering to their constituency, who

certainly don't care about Reliance.

I did not say they are in love with Reliance but divorce is hard whenso much money is involved.

>>Only the state can pay for that, not Reliance.

Oh the loss-making PSUs?

>>Reliance can go bankrupt as far as any politician cares. If theydon't have money for lobbying then the pols will lose interest anyway

So, are you now saying that "money for lobbying" is what is holdingthe interest of the pols or you are saying pols don't have any interest

in Reliance?

Former seems to be self-evident and latter is less believable thannext bollywood blockbuster about Yeti in Himalayan foothills.

HITESH BRAHMBHATTSAN DIEGO, UNITED STATES


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the great gas heist _ lola nayar, arindam mukherjee, madhavi tata

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