8/13/2019 Www.outlookindia.com _ a Wellhead of Blunders

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Instead of doing the

markets job, the

govt should have

applied itself to

formulating policy.

National/ Cover Stories/ Opinion MAGAZINE | JUL 15, 2013

JUMP CUT

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

T.N.R. RAO

Why did our market-friendly policymakers revert to the much-maligned administered price only for gas, whilebatting for market prices for all else? In a classic case of policy capture by a corporate, an effete governmentgot inveigled into impleading itself into the Ambani family feud. On the pretext of gas being a national asset, itbailed out one sibling from both a private commitment and an inconvenient bid at $2.34/mmbtu to the NTPCtender. This also cheated the country of Malaysian LNG at $3.4/mmbtu.

Still, the GoI rewarded the truant contractor with $4.20/mmbtu. It further allowed him to sell part of the national

asset for billions of dollars, only to see the reserves evaporate by over 80 per cent. Neither the buyer (BP) northe owner (the government) demurred. The custodian of our reservoirs, the DGH, has been deafeningly silent.For this vanishing act, the contractor is further rewarded by doubled price, on a dubious formula concocted by abody unlettered in oil/gas, making it the highest wellhead price for gas anywhere in the world. The countrysmain opposition party is a silent accomplice in this.

The grounds adduced are specious. Crude oil gets international prices since the90s but production has stagnated. The gas story wont be any different. Theworld over, oil/gas drilling rise and fall with market prices. Fields unviable atprices market cant bear remain capped. At $200/bbl or more for oil, Assam,sitting on shale sands, can produce enough oil to make the countryself-sufficient. But thats not how e&p is played. Such artificially high prices hurt

the economy. The FM, with his pinch the baby, rock the cradle act, hints atfurther subsidising power and fertiliser sectors out of public funds, but not touchprivate profits. Already, power plants in India are switching to coal from costly

LNG/gas, adding to higher carbon emissions and imports. On the other hand, the US shows what low energyprices can do; its enabled industrial units from Africa and Latin America to be transplanted to US, boosting itseconomy. High energy prices, fixed in dollars against a falling rupee, will have a disastrous effect on oureconomy.

Instead of doing the markets job of determining prices, the government ought to have exerted itself to formulatepolicy measures non-existent now. Higher investment and competitive energy prices need a strong,independent and stable regulatory regime. All gas pipelines are natural monopolies and fragment the market.The policy regime should mandate the trunk pipelines to meet, ensure non-discriminatory access, destinationflexibility facilitating price arbitrage so that gas-to-gas competition is generated. Reserve disclosure norms

should be made statutory. The CCI should discourage monopoly pricing practices and start processes todecouple gas prices from oil. Otherwise, the country will remain frozen in time.

Will production rise now in KG basin? If so, why is ONGC being persuaded to lease the gold-plated facilities,instead of building its own? All infrastructure here is financed by cost of oil/gas and so belongs to thegovernment. Any lease rentals should accrue only to the government, a point to be noted by the CAG and theCVC.

T.N.R. Rao, former petroleum secretary; E-mail your columnist: tayur AT bol.net.in

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