An interesting link to understand the crony capitalism of RIL.

http://www.business-standard.com/article/companies/10-things-you-should-know-about-the-reliance-kg-d6-gas-deal-114021200357_1.html

1) What is KG D6 basin?

Krishna Godavari (KG) Basin is spread across 50,000 sq km in the Krishna River and Godavari river basins near the coast of Andhra Pradesh. The site Dhirubhai-6 (D6) is where Reliance Industries discovered the biggest gas reserves in India. In government records, the 7,645 sq km block is known as KG-DWN-98/1. The KG basin is considered to be the largest natural gas basin in India.

2) How did Reliance Industries get into KG basin?

Government of India opened up hydrocarbon exploration and production (E&P) in the country to private and foreign players in 1991. Small and medium sized blocks were opened up in this round which was followed up by giving out bigger blocks in 1999 as per the New Exploration and Licensing Policy (NELP). Through NELP, Reliance bagged the rights to explore the D6 block.

3) Did government have a role after the block was handed over?

Since all mining resources belong to the people of India, government monitors the exploration and production of these. In the case of oil and gas sector, government enters into contractual relationship with the private player through a Production Sharing Contract (PSC). The PSC lays out roles and responsibilities of all parties, specifies the detailed procedures to be followed at different stages of exploration, development and production. It also specifies the cost recovery and profit sharing in the contract. Directorate General of Hydrocarbon (DGH) monitors the PSC. A PSC was signed between the government of India (GOI) and undivided Reliance Industries and its minority partner Niko Resources (10 per cent stake) for exploration and production of oil and gas.

4) What happened to KG D6 when the Reliance group split?

Even before production could start from the KG D6 wells, Reliance group was split vertically between the two brothers, with the gas business of Reliance Industries remaining with Mukesh Ambani, the elder brother. The brothers fought over this huge reserve of gas even though it was not theirs in the first place. The very first line of a production sharing contract clearly says that “By virtue of article 297 of the Constitution of India, Petroleum is a natural state in the territorial waters and the continental shelf of India is vested with the Union of India”.

The brothers while splitting their father’s empire split the gas reserves too. A family pact between the two brothers, which was never made public till the issue blew out of proportion, was at the core of the dispute. Anil Ambani owned RNRL (Reliance Natural Resources Ltd) citing the agreement by the brothers in 2005, claimed it had rights to gas from Reliance KG basin for 17 years at $2.34 per mmBtu (million British thermal unit).The Supreme Court finally settled the matter by saying that ‘the government owns the gas till it reaches its ultimate consumer and parties must restrict their negotiation within the conditions of the government policy’.

Here the role of the government needs to be highlighted. None of the ministries involved in the process, including the oil ministry which Moily now represents, raised the point that the gas reserves belonged to the country and was not a property of the Ambani family. Even the Prime Minister, ManMohan Singh meekly requested the brothers to settle their differences in the interests of the country.

But how did the Ambani brothers arrive at this magic figure of $2.34 per mmBtu when there was no benchmark. In fact ONGC was supplying gas to the government at half the rate.

5) How did Anil Ambani arrive at the price of $2.34 per mmBtu for KG basin gas?

In June 2004, National Thermal Power Corporation (NTPC) invited bids for supply of gas for its 2600 MW power plant in Kawas and Gandhar. Reliance Industries, hopeful of starting production of gas by the time NTPC’s power plant is ready bid for the project and was awarded it as the lowest ‘techno-commercial’ bidder. A Letter of Intent (LOI) was issued to Reliance Industries to supply 132 trillion units of gas per annum to NTPC for 17 years at a price of $2.34 per mmBtu. Anil Ambani used this as a basis for asking gas for his power plant.

6) Why is the NTPC-Reliance dispute all about?

Reliance Industries refused to sign the contract for supply of gas. Jairam Ramesh, the Minister of Power in a written reply to a question in Lok Sabha in 2009 said that “After issuance of LOI, RIL did not come forward to sign the Gas Sale and Purchase Agreement and sought major changes in the draft GSPA.In spite of all the efforts (by NTPC) RIL did not sign the GSPA agreed during the bidding process.”

NTPC dragged Reliance to Bombay High Court on December 20, 2005 but unfortunately the case that has dragged on. The case after nine years is still sub judice. Here again the government's disinterest in protecting the interests of its own PSU has been a matter of much debate.

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. EGoM approved a rate hike of $4.2 per mmBtu of gas. This decision was taken without a single unit of gas coming out of the KG basin.

Reliance grabbed at this opportunity and said that it could not supply gas at a price lower than the mandated price set by the government.

7) How did Pranab Mukherjee arrive at the price of $4.2 mmBtu for gas?

The price was arrived by Reliance through its ‘price discovery mechanism’. As per a Reliance crafter formula, user companies were asked to quote a price which gave them a choice of arriving at a value between $4.54 and $4.75 per mmBtu. Reliance initially forwarded a figure of $4.59 which was later brought down to $4.3, but Pranab Mukherjee claimed victory by announcing a figure of $4.2 per mmBtu.

The brazenness of the entire exercise by the government can be seen from the fact that the objections raised by the Principal Advisor, Power and Energy to the government of India, Surya P Sethi along with the then cabinet secretary were ignored by the government. Surya questions the recommendation saying that nowhere is the cost of production more than $1.43.

8) Is it exploration or exploitation?

A CAG report released in 2011 (initiated in 2007 but delayed due to non-co-operation) on Performance Audit of Hydrocarbon PSCs castigated the oil ministry along with Reliance to retain its entire KG-D6 block in contravention of the PSC. As per the PSC, Reliance should have relinquished 25 per cent 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 CAG’s words this was done to confuse potential/prospectivity with actual discovery of hydrocarbons. The move allowed Reliance to keep the entire area to itself without following the norms laid under the PSC.

In a recent report CAG has said that Reliance moved directly from discovery to commercial production, skipping the intermediate appraisal programme step required as under PSC. CAG asks, 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, as pointed out by CAG, how did DGH assure itself of reliability of the development plan, production rate and production costs without the appraisal report?

9) Why more investments are bad?

CAG pointed 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. Share of government profit varies from 85 per cent in a low investment scenario to 5 per cent in a high investment scenario. This explains the case of exaggerated investment made against Reliance Industries.

Incidentally, as pointed out by V Ranganathan of IIM Bangalore 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. Reliance 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.

10) How was the new pricing formula arrived at?

Former RBI governor C Rangarajan came out with a formula which has been followed nowhere in the world, which has resulted in Reliance (and other players too) getting a price on import parity basis. Surya Sethi, former Principal Adviser, Power and Energy, Government of India does not mince words when he asks the Prime Minister in an open letter not to burden the nation with Rangarajan Committee’s madness that only benefit a select few.

Conclusion
Sethi’s open letter to the Prime Minister sums up the entire issue when he points out that the CAG’s findings reveal how crony capitalism benefited RIL. 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 says Sethi. Above all, the company’s commitments under the PSC on gas output were not enforced.

The entire episode stinks of anything but natural gas. While Moily may claim that system was followed, there is enough evidence out there that says otherwise.

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A Delhite in Toronto

http://www.business-standard.com/article/opinion/surya-p-sethi-another-scam-in-the-making-113122200637_1.html

An open letter to the prime minister on the Rangarajan formula doubling the price of KG basin gas

I understand your Cabinet has approved a doubling of the wellhead price of the Krishna-Godavari (KG) Basin gas. The fig leaf justifying this shameful decision is the proposed bank guarantee that would recover overpayments to Reliance India Limited (RIL), if a future tribunal concludes that RIL hoarded gas in the past. Sir, your government is party to RIL's repeated violations of its performance commitments under the Production Sharing Contract (PSC) governing theKG Basin concession. Given the already muddied performance criteria, enforcing the guarantee will be akin to recovering water from a sieve. The proposed bank guarantee does not fool anyone with some understanding of the sector and considering what happened in the KG Basin. So Sir, drop the futile bank guarantee and simply ensure that the PSC governing RIL's concession is enforced strictly and transparently.

The Comptroller and Auditor General's findings and other independent reports reveal how crony capitalism benefited RIL. 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. Above all, RIL's commitments under the PSC and the field development plans were not enforced.

RIL's clout was on full display when, despite serious objections from me and the then Cabinet Secretary, the 2007 Empowered Group of Ministers approved the price of $4.20 per million metric British Thermal Units (MMBTU) based on an RIL-crafted formula that was unique in the world for pricing natural gas. The $2.34/MMBTU bid by RIL, in a global tender, for the same gas was ignored. A sham price discovery exercise was permitted to justify the higher price that the approved formula delivered.

Sir, your Cabinet's decision will compound this largess driven, yet again, by another indefensible formula that has no parallel, anywhere in the world, for estimating the wellhead price of conventional natural gas. The Rangarajan Committee's formula is incapable of estimating this price since none of its elements represent such a price.

It is incorrectly argued that higher prices, even for producing fields with established reserves, will enhance India's energy security. The PSC has no provision for revising wellhead price of gas from fields already declared commercial. Doing so only shifts the contractor's risk burden to gas consumers. Thus, it completely abrogates the responsibility the Supreme Court placed on the government for pricing and allocating natural resources. Ironically, the apex court fixed such responsibility through its pronouncements in a case involving the pricing and allocation of the same KG basin gas.

The wider implications of mismanaging India's energy sector are disastrous. Inappropriate energy sector policies are at the core of the current fiscal imbalance, both on the external and the domestic account. Importantly, India's socio-economic parameters that remain at or below sub-Saharan levels cannot be improved without providing affordable and adequate access to modern commercial energy to every Indian. Unfortunately, India's energy policies are not geared to achieving this objective.

Sir, some of your learned Cabinet colleagues have made price increases the mainstay of energy sector reforms. Handpicked "Expert Committees", support their arguments with dubious analysis. Allow me, Sir, to demolish the myths they together propound to mislead the nation on energy pricing.

Myth 1: The Indian energy sector is heavily subsidised: India's energy sector has many cross-subsidies but no net subsidies. Oil and gas taxes alone contribute 15 per cent of the central government's revenue and 20 per cent of total state government revenues. The erroneous policy of promoting surplus refining capacity through incentives funded by the Indian taxpayer has, in addition, forced your fellow taxpayers to subsidise foreign buyers of surplus Indian petroleum products. India exports petroleum products at prices well below those paid by domestic consumers. Quite paradoxically, petroleum products have emerged as the lead export of an energy-deficient and energy-starved India. Contrary to common belief, even coal carries no subsidies. Instead, haulage of coal and petroleum products by rail, cross-subsidises passenger fares.

Myth 2: India's energy prices are low compared to international levels: The effective cost of all primary and secondary commercial energy sources to Indian end-users is among the highest in the world, if compared correctly. Based on capacity to pay and purchasing power parity; even merit goods like kerosene and LPG, are over-priced despite massive cross-subsidisation. This is why over 70 per cent of your fellow citizens either lack access or have grossly inadequate access to modern commercial energy.

Myth 3: India is highly dependent on imported energy: The government and its "experts" repeatedly cite high import dependence as justification for raising energy prices. India imports less than 28 per cent of her primary energy consumption. Import dependence remains below 37 per cent even if one only considers India's commercial energy consumption. This compares with an almost 100 per cent import dependence of Japan. And yet, Indians already pay more for energy than the Japanese based on a defensible comparison. In any event, the economic justification for raising the price of a domestic resource whenever its consumption is supplemented through higher priced imports and denominating the domestic price in the dollars is, in itself, debatable. The selective application of such a policy to pricing different products within the energy sector, as also across different sectors, compounds price distortions.

Myth 4: India's power sector makes heavy losses because of low tariffs: The Indian power sector, taken as a whole, does not make losses. All energy sector enterprises, except the state distribution companies, are profitable. Ironically, it is the state distribution companies that generate the bulk of the cash flow that delivers the returns to the others. A fair reallocation of risks and rewards in the sector would actually see tariffs going down rather than up. Average Indian power tariffs are grossly non-competitive by global standards. The proposed increase in the price of domestic gas will make matters worse.

The deafening silence of both major political parties on the proposed doubling of the wellhead price of natural gas compelled me to write this open letter. India's energy intensity of GDP today is half of its 1990 level. However, the energy intensity of agriculture has doubled over the same period. The consequences of the proposed hike in domestic gas prices will be detrimental to India's food security.

Since an entrenched oligarchy is the defining feature of our governance structure, I humbly plead you, to not burden the nation with Rangarajan Committee's madness that only benefits a select few. At stake are the Indian industrial, agricultural and services sectors and households. Nip the proposed domestic gas price hike in the bud before it gets labelled as yet another scam under your watch, I invite an open debate with anyone of your "experts" on the inappropriateness of both the 2007 formula and the Rangarajan Committee formula for determining wellhead price of domestic gas. I am equally willing to debate any other issue raised above.
Respectfully yours

Surya P Sethi

The writer is former Principal Adviser, Power and Energy, Government of India

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A Delhite in Toronto

Reliance is notorious for cutting corners even from their Dhirubhai days.

The sad part is, the situation in India is unlikely to change even if Modi comes to power.

Appears that Modi will be compromised or most likely he and BJP have already been.

If people who deserve to serve terms in Tihar jail are to be called "Businessmen" what should we say to refer to the real business people.

Just look at the instant direct telecast of Modi speeches these days from nook and corner of the country, wherever he is giving speeches.

Not just one channel, but all the big 4 english news channels Times Now, CNN-IBN, ND TV and Headlines Today, go about live telecasting the Modi speeches in a big chorus on a daily basis.

Are they doing it for free and should we believe it is not paid news.

How has this become suddenly possible, unless one or many of these big corporates have found out, Modi and NOT Rahul is going to be the winning horse and are sponsoring this live telecast.

If Modi really wants to do any good to the people, he should put all these crony capitalists in their places (Tihar Jail) and bring out all their ill-gotten wealth from inside India and that stashed abroad.

We really hope that Modi really believes and will put Motherland above everything else when he Thakat Sey Boliye the crowd into shouting VANDE MATARAM.

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Quote:

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Originally posted by ramar2005

Reliance is notorious for cutting corners even from their Dhirubhai days.

The sad part is, the situation in India is unlikely to change even if Modi comes to power.

Appears that Modi will be compromised or most likely he and BJP have already been.


We really hope that Modi really believes and will put Motherland above everything else when he Thakat Sey Boliye the crowd into shouting VANDE MATARAM.

---

Really pray your words come true.

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Under the heap of lies and rubble created by presstitutes or mediastitutes, lies deep the truth on the story of gas pricing to benefit RIL.

When AK questioned BJP, its spokesperson Sorry-To-Say Ravi Shankar Prasad, we are sorry to say, followed the usual practice of tarnishing and blackening the questioner (i.e., AK), than answering the merit or demerit of the question. He said, "AK was not able remain in power for 50 days, they have no right to ask".

Apparently, the spoils of the KG Block Gas sale are shared between the major political parties and the corporate and the burden shifted on the common man.

Without giving precedence or even the smallest importance to the charges leveled not just by AK, but prominent citizens like former Secretaries and Naval Chief and eminent SC lawyer, ND TV Barqa Dutt gave prominence to Recount Minister Chidambaram's ramble and fart regarding the price hike.

The media repeatedly mentioned about AK's FIR but not about the 23 points he had raised lest the people get enlightened. These 23 questions are,

In 2006, Mani Shankar Iyer was removed and Murli Deora brought in to increase RIL capex from $ 2.39 billion to $ 8.8 billion and to increase gas price from $2.34 per mmBTU to $ 4.2 per mmBTU.

In 2012, Jaipal Reddy has been removed and Moily brought in to increase gas prices from $ 4.2 per mmBTU to $ 14.2 mmBTU and to condone RIL’s blackmailing of reducing gas production.

Both BJP and Congress involved. BJP signed a sweet deal with RIL in 2000. Congress faithfully implemented it.

If RIL demand of increasing the gas price to $ 14.2 is accepted, it would lead to shut down of several gas-based power plants and increase in power and fertilizer prices. By this deal, RIL would benefit by an additional Rs. 43,000 crore.

In Nira Radiia tapes, Ranjan Bhattacharya (Vajpayee’s son in law) is heard telling Nira that Mukesh Ambani told him –“Congress to ab apni dukaan hai”.

Huge benefits given to RIL in last one decade despite flagrant violations of various agreements by RIL. Benefits to RIL causing serious price rise in the country.

The IAC says: "In order to pressurize the government, RIL substantially reduced its production of natural gas.

Total consumption of natural gas in the country is 156 mmscmd. According to agreement, RIL was supposed to produce 80mmscmd (more than 50% of the total demand) from 2009."

RIL got this contract during NDA regime in the year 2000. The contract was meant to favor RIL right from the beginning. In any business, increase in costs means decrease in profits."

4 times, cost escalation within 2 years from $ 2.39 billion in 2004 to $ 8.8 billion in 2006.

Increase in gas price from $ 2.34 per mmBTU in 2004 to $ 4.2 per mmBTU in 2007 to the present demand of $ 14.2 per mmBTU.

Capacity created for producing 80 mmscmd after incurring such a huge cost ends up producing just 27 mmscmd after 12 years.

31 oil wells should have been in production till now. Out of them, just 13 are functional.

This scam is on similar lines as Coal block allocation scam. Coal blocks were given away saying that coal production was less in the country and private sector participation would increase coal production. Rather than produce coal, the private parties hoarded coal blocks to sell them at appropriate time in future.

PM was very sympathetic to RIL. PM requested Ministry of Petroleum to seek AG its opinion on whether gas prices could be increased midway as demanded by Reliance. It is strange why did the PM not show similar concern when NTPC was forced to accept higher gas price from RIL?

Why is the PM not pulling up Reliance for not producing 80-mmscmd gas as per their commitment?

Why did the PM not seek legal opinion when country is interests were at stake?

Why is PM showing so much interest when RIL interests are at stake?"

This episode explains the real reasons for price rise in the country. The government seems to be succumbing to illegitimate demands of some powerful corporates in the country (like RIL in this case). Benefits provided to RIL in this case contributed to price rise in power and fertilizer sectors.
Similarly, on one hand, government says that they do not have Rs. 35,000 crores to provide LPG subsidy to the people, on the other hand, the government bends backwards to provide benefits to these corporate."

RIL was supposed to supply gas at $4.25 per unit for 17 yrs. within 2 years they started asking for revision of this rate”, he said, adding that the NTPC had signed an agreement with RIL where it was supposed to supply gas to the government at the rate $2.25 per unit but said that they charged $4. 25/unit instead. Kejriwal says that this was subsequently approved by a GoM headed by Pranab Mukherjee.

When NTPC was asked to pay $4.25/unit, why did the PM not consult Attorney General?”, he asks, adding that the KG-D6 deal with RIL should be scrapped immediately.

A performance audit by CAG held immediately regarding all deals.

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An article by Dipankar Mukherjee reg the history of the corruption


THE government of the day does not own the natural gas from Krishna Godavari (KG) basin. It is a natural resource owned by the people of this country and the government is only the trustee. National resources are owned by the doctrine of public trust as held by the Supreme Court. Natural gas being one of the main sources of energy for production of power and fertilizer, higher price of gas means higher tariff from gas-based power plants and higher fertilizer subsidy. That is why the recently revealed CAG's draft report very correctly categorises the loss on KG gas scam as "unquantifiable" unlike 2G scam where the quantification is more specific to the tune of Rs 1.76 lakh crore.

But the most glaring difference between these two cases is on the issue of accountability i.e. where does the buck stop in the KG gas scam? Let the facts speak for themselves.

Genesis of the Case
Till recently gas production and marketing was entirely with the public sector and pricing was administered. This was opened up for private participation in the nineties. The New Exploration and Licensing Policy (NELP) was announced in 1997 and M/s RIL was awarded the contract in the first NELP round for operating KG basin, which has India's largest gas discoveries. A Production Sharing Contract (PSC) was signed between the government and RIL, the contractor, to govern gas production and pricing. The opening of gas production and marketing to private sector resulted in dual pricing of gas: administered and market-linked. Administered Price was through "Administrative Pricing Mechanism" (APM), which comprised actual cost of production plus reasonable profit, determined by the government. Before the production and marketing of KG basin started in 2009, the pre-dominant part was covered by APM @ 1.83 US dollar/unit. Before the marketing of KG gas, market pricing was done for relatively small volumes by private operators which were in the field before NELP.

CAG's draft report has actually vindicated one of the two major charges leveled by CPI(M) MPs against government-RIL nexus on KG gas viz the "gold plating" or "manipulating the development cost of the gas fields". The other charge was regarding high price of Reliance gas @ 4.2 USD/unit fixed up in 2007 by an Empowered Group of Ministers, in spite of the fact that actual production cost of KG gas was 1.43 USD/unit, the APM cost of ONGC was 1.83 USD and most shockingly RIL itself had quoted 2.34 USD/unit to M/s NTPC, the Maharatna PSU, in response to an international competitive bidding in 2004. This issue of pricing of gas has not been dealt in CAG's Draft report.

Chronology of Events
I. The question was first raised in Rajya Sabha on December 12, 2006 by CPI(M) MPs late ChittabrataMajumdar and Tapan Sen. The government informed that M/s RIL-Niko consortium had submitted a development plan that envisaged increase in production from 40 to 80 mmscmd and increase in expenditure from 2.47 billion dollar to 8.84 billion dollar. It was immediately pointed out in a letter dated 21.12.2006 to minister of petroleum and natural gas by Tapan Sen, MP and a member of Standing Committee of Petroleum and Natural Gas that the expenditure per unit of production, which should come down with the increase in production due to economy of scale, had been inflated abnormally, warranting immediate intervention by the government.

II. This was followed up with three letters dated 25.01.2007, 27.02.2007 and 12.03.2007. On April 30, 2007 a detailed letter was again sent to minister of petroleum and natural gas with copy to the prime minister about the likely impact of gold plating on price of natural gas. On 15.05.2007 in reply to a question in parliament, it was informed by the government that the revised capital investment has been approved by DGH.

III. Three more letters dated 11.6.2007, 4.7.2007 and 13.7.2007 were sent by Tapan Sen to the Prime Minister directly for his intervention to stop gold plating and ensure that the price of natural gas is not arbitrarily increased. No action was taken other than mere acknowledgement of letters.

IV. The Prime Minister and his office swung into action only when the then chief minister of AndhraPradesh late Y S RajasekharReddy raised a number of issues on KG basin gas, including the gold plating and pricing of gas in a series of three letters dated 16th, 29th & 30th June 2007. Some of issues raised by Reddy were common viz

a) The proposed market discovery price of natural gas produced from KG basin @ $ 4.5 to $ 5/MMBTU would mean an increase of 256 per cent from the present APM prices.

b) RIL has obtained bids from consumers with stranded assets and claim this to be market driven price forgetting its own bid to NTPC. This bid should be treated as market price because this price came through global competitive bidding.

c) The government should monitor the investment by the contractors and have it scrutinized by independent and autonomous authority so that costs are not unduly inflated.

d) It will also be necessary to constitute an independent autonomous regulatory authority to decide upstream pricing of gas.


V. PM/PMO immediately referred these letters to a Committee of Secretaries headed by cabinet secretary which was assigned to give report on issues related to supply and pricing of gas.

This raises an immediate question - why did the PM/PMO selectively choose to refer only the three letters written by AndhraPradesh CM to the Committee of Secretaries ignoring the letters from an MP, that too an MP who was a member of Parliamentary Standing Committee on Petroleum and Natural Gas? Were these letters that contained several facts and figures ignored only because he was neither a Congressman nor someone from civil society? Who is responsible for this sidelining of a people's representative in parliament?

Report of the Cabinet Secretary
The Committees of Secretaries met on 29.6.2007, 2.7.2007, 6.7.2007 and 10.7.2007. And on development cost of the gas field, as per available information, the cabinet secretary reported:

'The accountability of Management Committee mechanism for approval of various costs needs to be enhanced. For this purpose, Ministry of Petroleum & Natural Gas would draw up guidelines and mechanisms with the approval of the government as large amounts of government revenue in profit share are involved. Effective audit mechanisms through C&AG or other reputed agencies would be put in place. It is noted here that under Article 25.5, "The government shall have the right to audit the accounting records of the contractor in respect of petroleum operations in the accounting procedure." The government must, in consultation with the CAG, appoint an international auditor who has sufficient experience in the field of oil exploration and production.'

The report was sent to PMO. Did the prime minister/government consult CAG and appoint an international auditor? Who should be blamed for not taking any preventive step to stop the revenue loss, though cautioned repeatedly by CPI(M) MPs, AP chief minister and even the cabinet secretary? Where should the buck stop?

Gas Pricing Formula
What did the cabinet secretary's report say regarding the pricing formula offered by RIL as per which the "well-head" price (i.e. the price at the production point) was 4.33 dollar per barrel and the delivered price at the user end would be 4.76 to 5.98 dollar without taxes? It reportedly said "the RIL formula may be taken up for approval only after a policy is put in place. Prima facie the formula appears to suffer from several infirmities in respect of the formula employed and the bidding process."

The above was based on the presentations by the ministry of fertilizers and NTPC/ministry of power, which specifically stated:
• RIL price formula is flawed;
• A delivery price beyond 5 dollar/unit will be prohibitive for fertilizer sector and every increase of 1 dollar will involve an additional Rs 2000 crore subsidy;
• Gas price beyond 2.34 dollar will be prohibitive for power sector;
• Pricing should be fixed by Petroleum & Natural Gas Regulatory Board after amendment in the Act;
• It was not prudent to fix a price which will jeoparadise the NTPC's case wherein price of 2.34 dollar was arrived at after International Competitive Bidding."

Not only that, the chairman & managing director of NTPC in a letter dated 24.8.2007 wrote to the chairman of EGoM:
"In continuation of the presentation I made on the gas pricing issue of Reliance Industries Limited for KG Basin with particular reference to NTPC contract, I would like to convey that implication of the price differential between gas price as delivered at Kawas/Gandhar as per NTPC Contract and RIL's proposed price, will be of the order of Rs 24,000 crore for the quantity contracted by NTPC during the entire contract period of 17 years. This aspect may also please be kept in view."

Inspite of the above, the EGoM approved the price formula in a great haste on 12.9.2007 though the production of KG gas started only from 1.4.2009. The rate was slightly reduced from 4.33 dollar to 4.2 dollar/unit. Why this hurry when there were serious question marks on development cost, pricing formula, loss to NTPC, financial impact on fertilizer and power production? Who is answerable to the parliament on an issue concerning three ministries viz Petroleum & Natural Gas, Power and Fertilizer? A minister or a Group of Ministers or the prime minister?

Why EGoM?
As outlined at the outset, gas pricing was mostly based on cost plus reasonable profit basis as per APM and there was no sacrosanct formula for pricing for non APM gas produced by private sector, which covered very small volumes before KG basin gas. Keeping this in perspective the "Integrated Energy Policy" document of August 2006, prepared by the Planning Commission, recommended:

"As long as there is shortage of natural gas in the country and the two major users of gas, namely fertilizer and power, work in a regulated cost plus environment, a competitive market determined price would be highly distorted. The prevailing regime of fertilizer subsidies & power sector subsidies would further amplify such distortions and cross subsides. In such a situation price of domestic natural gas and its allocation should be independently regulated on a cost plus basis including reasonable returns."

The prime minister is the chairman of the Planning Commission and there was a gas shortage in 2007 which continues till date. Then who decided to overrule the Planning Commission recommendation for "Cost Plus" pricing and went for a distorted market determined price through a fast-track EGoM?

And finally what was the rationale for forming an EGoM headed by external affairs minister to fix gas price when Energy Co-ordination Committee (ECC) headed by the prime minister and comprising ministers of Finance, Petroleum & Natural Gas, Power, Coal, deputy chairman of Planning Commission, chairman of Economic Advisory Council to PM, with principal secretary to PM as convener was already in place since July 2005. Need for rational pricing to promote inter fuel substitutions (in this case gas, coal and oil) is one of major issues before ECC. Still, why a separate EGoM? Is it a case of shirking responsibility or of willfully insulating oneself from another 'G' series scam? Who will answer? Obviously not JaipalReddy, Deora, Sibal or Digvijay Singh. Where does the buck stop?

(The writer is a former Member of Parliament from the CPI-M)

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