Moily said he had taken special interest to reduce the prices of compressed natural gas (CNG) and piped natural gas (PNG) by Rs 15 per kg and Rs 5 per kg respectively on 3 February. Earlier, in December 2013, when the price of CNG in Delhi was hiked by Rs 4.50 per kg and that of PNG by Rs 5.15 per kg, Kejriwal had questioned the timing of the hike, the second in three months. Congress leader Ajay Maken said that while his party was not against an inquiry, he cautioned against any political vendetta. Finance minister Chidambaram termed the FIR naming Mukesh Ambani as ‘laughable’. He said his government had imposed a huge penalty of around $1.8 billion on RIL and asked the company to furnish a bank guarantee for the undelivered gas pending the price rise. Thus, Chidambaram concluded, there was no merit in Kejriwal’s ‘throwaway lines’ that the government was being run by Mukesh Ambani.
It was not just the ruling Congress party that raised doubts about the validity of the FIR. Senior BJP leader Arun Jaitley asked: ‘Can the state government, through its Anti-Corruption Branch, investigate a decision taken by the Central government?’
Whereas a number of doubts were raised on the legal tenability of the complaint lodged by the AAP government in Delhi, the situation became clear when the Union law ministry opined that the FIR—a written document prepared by the police after receiving information about a cognisable offence having been allegedly committed, which allows the police to start investigations and sets in motion the process of criminal justice—was in order. The law ministry stated that the Delhi ACB was empowered to conduct the probe within its territorial jurisdiction of the state following various court judgements which were cited.
Former finance minister Yashwant Sinha of the BJP, who headed the Parliamentary committee that had passed adverse comments against the government on alleged favours granted to RIL in extracting gas from the KG basin, said that it is was for the police and the courts to determine criminality in the case. The Samajwadi Party too derided the FIR as ‘drama’ enacted by Kejriwal in an attempt to attain ‘political martyrdom’. The AAP’s ‘ignorance’ was also sought to be highlighted by the former Shell India head and Brookings India chairperson Vikram S. Mehta in an article titled ‘Fuelling Ignorance’ (Indian Express, 15 February 2014). He warned that investors would be scared away. Mehta projected his ‘neutrality’ by stating that he left Shell ‘just a year ago’ while, at the same time, mentioning that his 35-year association with the hydrocarbons industry enabled him to draw on his ‘experience to provide an objective answer’ to the four questions raised in the FIR.
Mehta took up cudgels for the Rangarajan Committee and said that its decision was based on sound economic logic. Commenting that there was no global benchmark for natural gas unlike that for oil, he said the approach of the committee had not been ‘plucked out of thin air’. While world prices of crude oil had reference markers (such as Brent and West Texas Intermediate), gas was sold at the following prices: $4 per mBtu in the US; $6–8 per mBtu in Europe and around $16 per mBtu in the Asia-Pacific region. Thus, the Rangarajan Committee’s formula approximates the weighted average price across these three regions, with the average coming to around $8 per mBtu. He argued that a weighted average of various price points—fuel prices that power plants would be ready to pay—would also have come close to $8 per mBtu. His argument went thus:
A power plant fuelled by naphtha or LPG (liquefied petroleum gas) would be willing to pay at least $16 per mBtu (as some are doing currently), given that the cost of liquid fuels is currently in excess of $20 per mBtu on an equivalent basis. A power plant run on coal, on the other hand, would not pay more than $5-6 per mBtu (and probably less), as coal is relatively cheap and it would not make economic sense to pay a higher price. A fertiliser company would be incentivised to manufacture fertilisers rather than import if it were assured of secure and reliable gas supplies at around $8 per barrel.
Echoing petroleum minister Moily’s line, Mehta wrote that it is the public sector entity ONGC that would be the main beneficiary since it produced 85 per cent of domestic gas and therefore, the government would be a major recipient of the incremental profits generated by the price hike. He said a company had no reason to produce less on purpose and lose money, and cited international cases where production had fallen.
Mehta also raised the question of expenses that are incurred in setting up oil and gas infrastructure. One offshore deepwater well costs between $50 billion and $100 billion. He stated that if all facilities at KG-D6 had been built and were producing steadily, the operating cost per well could be around $1 per barrel, though this could not guarantee windfall profits as indicated by Kejriwal. The Brookings India head said that there was no merit in the allegations of gold- plating against the company:
Does a contract structure that allows a company to first recover its costs and thereafter only share the profits encourage gold- plating, that is, deliberate over-investment? There is no knowing what individual companies might do but many experts, including, most recently, the Kelkar Committee, have concluded that when the net present value of investment for both the company and the government falls, the fall is more rapid for the company when capital expenditure increases. This is because the companies contribute 100 per cent of the risk capital. There is little, if any, economic incentive for companies to gold-plate their expenditure.
Others lampooned Kejriwal contending that he was a victim of false propaganda. Swaminathan S. Anklesaria Aiyar (who is, incidentally, brother of former petroleum minister Mani Shankar Aiyar—the two are ideologically poles apart) sought to debunk Kejriwal’s accusations saying that he had ‘backed a silly conspiracy theory based on falsehoods’ in his column in the Times of India (16 February 2014). Backing Moily, he wrote that the minister had merely followed expert advice from the ‘eminent’ Rangarajan Committee, whose members had been slandered by the AAP leader’s accusations. Aiyar sought to delink the gas price hike issue from the pending suit against RIL in the Supreme Court:
Illustrious civil servants have launched a public interest suit accusing Reliance of artificially jacking up exploration costs in the Krishna Godavari field to benefit from higher cost recovery. They also accuse RIL of deliberately reducing gas production in the last few years on bogus technical grounds, the real motive being to conserve gas till prices go up in April 2014. Only technical experts can give a verdict on these technical issues. Reliance should be penalized severely if found guilty. But that has nothing to do with the appropriate price for gas, which relates to all gas producers and not just Reliance.
Quite predictably, businessmen such as liquor baron and Rajya Sabha MP Vijay Mallya protested against the ‘witch hunt’ against industrialists by Kejriwal using ‘unconventional methods’. Speaking to reporters outside Parliament, Mallya said representatives of industry should be respected and treated with dignity as they ran companies than contributed to economic growth. (It was a separate matter altogether that Mallya is widely discredited after the mismanagement of his aviation company, Kingfisher Airlines, which has stopped operating leaving behind huge unpaid dues to banks.)
The Left said that its MPs had raised the issues being highlighted by AAP much earlier. CPI(M) MP Sitaram Yechury remarked:
This is nothing new. We have been raising this question about the gas since the last three years in Parliament. An Empowered Group of Ministers was formed. It was headed by the President. We were not happy with the recommendations of the group. A petition was filed in the Supreme Court. Whenever we raise this issue, the government tells us that the matter is sub-judice.
In an article titled ‘The gas price conundrum’ published in the Hindu(19 February 2014), former member of the Petroleum and Natural Gas Regulatory Board Sudha Mahalingam, who has been quoted earlier in this book, said the gas price hike will increase food inflation since over a third of the gas produced in the country is consumed by the fertiliser industry. By increasing costs of producing fertilisers, the government’s subsidy bill will go up significantly: ‘That means, tra
nsferring money from the exchequer to the private gas producer’s pocket via the fertilizer subsidy or facing a drastic drop in food grains output,’ she wrote.
The Central Electricity Authority (CEA) told the government that the hike in the price of gas will make electricity from gas-fired plants ‘unaffordable’ for state power distribution companies and such projects to languish. The Times of India (25 February 2014) wrote that with domestic gas prices designated in US dollars and with power plants paying in Indian rupees, fluctuations in the foreign exchange rate would lead to fluctuations in power tariffs. The CEA also highlighted that revising tariffs every quarter as suggested by the new gas pricing regime was impractical since state electricity regulators declare tariffs for a full year and almost all such regulators have already declared their tariffs for the fiscal year 2014–15 which ends on 31 March 2015. At the current gas price of $4.2 per mBtu, a gas-based power plant which is running at 30 per cent of installed capacity will end up paying between $5.6 and $6.5 per unit after loading value added tax and costs of transportation. The effective price would work out to at least $10 per unit, it was contended.
Even the Prime Minister’s right-hand man and redoubtable poster-boy of Indian neo-liberal economics, Planning Commission Deputy Chairman Montek Singh Ahluwalia acknowledged that power tariffs would have to be raised—by between 50 paise and 85 paise per kilowatt hour to support the production of 28 gigawatt (GW) of gas- based electricity and this could be treated as an ‘opportunity cost’ by consumers. Of the 20 GW of installed power-generating capacity, power plants with total capacity of around 5.5 GW would face shortages in the supply of gas. Plants generating the remaining 8 GW of gas- based electricity were yet to come up and it was not clear when (and if) these projects would be set up. The Indian Express (24 February) quoted a letter from Ahluwalia to power minister Jyotiraditya Scindia dated 6 February, a portion of which read:
Adopting this approach avoids the need to subsidise LNG for power or introduction of differential pricing, both of which present problems. Implementing this solution requires complementary action on peak pricing to be taken by individual regulators. No one will do it if they think the central government can be persuaded to provide gas cheaply or to subsidise it. Once that option disappears, states will themselves act to encourage the process.
However, the next day (25 February) the same newspaper carried a clarification from the Planning Commission which said the earlier article conveyed an impression that it was the Commission itself which was proposing a hike in power tariffs. The Commission clarified that the letter was written to forward a report of an expert committee headed by Commission member Saumitra Chaudhuri which had been set up to examine ways of ‘resolving the problem (facing plants) of 28,000 MW (28 GW) of gas-based capacity which lacks gas’. Further, the committee had simply suggested that gas-based power capacity could be economically used for meeting peak demand, commonly used the world over to meet peak loads (and not base loads):
There is typically excess demand for power at peak times, which leads to power cuts. Industrial users faced by power cuts are forced to rely on high cost diesel-based power which is much more expensive. The committee had suggested that if gas-based capacity is used to meet peak demand, and day tariffs are put in place which allow a higher tariff to be charged for peak time periods, then higher cost of power based on imported LNG could be accommodated by the higher tariff allowed for all the power (not just gas-based power) during peak time. Implementation of this solution requires cooperation by state electricity regulatory commissions which fix time of day variations in power tariffs.
Later in the month of March, Ahluwalia went on record defending the gas price hike and sought to junk the notion that the price of gas should be linked to the cost of production. In line with the Vijay Kelkar Committee interim report, he spoke of a ‘super-profit tax’ which could compensate the government in the event of price volatility. ‘Windfall gains should be there in the contract in terms of super profit tax. But, if you are mulling to do that you must have a floor,’ he said, adding that with the election dates having been announced, the government should not fail to seek the approval of the Election Commission before notifying the gas price hike.
Was Ahluwalia making a subtle suggestion that the decision on the gas price increase should be best left to the new elected government? Even pro-industry analysts revealed their discomfiture at the state of affairs. The Gateway House, a Mumbai based think-tank associated with the Mahindra Group, recommended that in the ‘absence of a single global marker [gas] price, it is time that India and other large importing countries in Asia, devise a price that reflects regional realities’. In an article dated 7 March 2014, posted on its website, Akshay Mathur, head of research and geo-economics and fellow at Gateway House, wrote that market-linked prices determined by the Rangarajan committee’s formula, have limitations in the context of Indian business and market realities and the consumer’s purchasing abilities:
Since the gas rates partially depend on crude prices, they become directly affected by the volatility of the global crude oil markets. And if the prices are denominated in dollars, a weakening rupee will cause a loss for the Indian consumer.... These limitations with the international market-linked prices, coupled with our own inefficient domestic assessments now under scrutiny for corruption, makes price assessment in India sub-optimal at best.
On 12 February, an article in the Millennium Post by Sujit Nath brought back into public memory the well-known nexus between government officials and RIL that facilitated the rise of the Ambanis. He wrote how RIL employed a large number of government officials with connections to the oil and gas industry and alleged that the company had been in possession of crucial documents of the ONGC on gas finds in the KG basin at least six months before RIL placed its bids in 2000. A staff officer to ONGC’s director, exploration, Ravi Bastia was the conduit for these documents, Nath claimed, adding that Bastia joined RIL soon after the company won the bid to extract gas from the KG basin. It may be recalled that S.L. Khosla, who was chairman and managing director of ONGC between May 1990 and September 1992, joined RIL the day after he retired. The newspaper highlighted how the RIL-funded Observer Research Foundation had employed a number of former bureaucrats, including the incumbent Lieutenant Governor of Delhi, Najeeb Jung, who was once an officer of the prestigious IAS and who served as joint secretary, exploration, in the petroleum ministry when the Panna-Mukta oilfield contracts were awarded to RIL.
Kejriwal kept up his campaign against Reliance on the gas price issue. He sent open letters to Narendra Modi, the BJP’s prime ministerial candidate and Congress vice president Rahul Gandhi. In his letter to Modi dated 21 February 2014, Kejriwal asked three questions:
If you form the government, will you pay the rate of $4 per unit of gas or $8 per unit of gas to Shri Mukesh Ambani?
What relations do you and your party have with Shri Mukesh Ambani?
How much money is being spent on your election campaigns and what is the source of this money?
He said that if rumours about the Ambani’s funding the BJP were true, then Modi’s stated intent to recover black money from abroad was a sham. Kejriwal then repeated his allegation that the Ambani brothers had bank accounts in Switzerland. Addressing a public meeting in Rohtak, Haryana, he read out the numbers of these so-called Swiss bank accounts held by the Ambanis. Once again, this was denied by RIL which stated that neither the company nor Mukesh Ambani had any illegitimate accounts anywhere in the world. ‘Reliance Industries Limited has business interests in several countries with turnover of thousands of crores in rupees. As a part of their normal business, these international subsidiaries of Reliance Industries Limited deal with several global banks,’ the statement put out by RIL read. But Kejriwal refused to remain quiet. The AAP leader added that there was little to differentiate between the Congress and the BJP and that both Modi and Rahul Gandhi used Ambani’s private aircraft.
Kejriwal also pointed out t
hat in 2000, when the BJP-led NDA government was in power, RIL had undertaken to supply gas to the government for 17 years at a rate of $2.34 per mBtu and this rate had been increased to more than $4 per mBtu, when the cost of extracting the gas was less than $1 per mBtu. Kejriwal claimed that Ambani’s company would get an undue benefit of Rs 54,000 crore annually whereas the annual budget of the Delhi government was lower at Rs 40,000 crore. In his letter to Rahul Gandhi dated 22 February, Kejriwal asked him whether he supported the decision to hike the price of gas and whether his party received ‘legitimate or illegitimate’ funds from Reliance. He alleged that the price hike decision was taken just before the elections. ‘Has Mukesh Ambani funded the party with unaccounted money for bagging some favours?’ he asked, claiming that Ambani was running the country like the East India Company.
At a media conference on 27 February, AAP leader Prashant Bhushan sought an investigation into transactions through which privately-held companies controlled by the RIL chairman received Rs 6,530 crore ($1.62 billion) through a multi-layered deal routed through two companies in Singapore. This deal was apparently done with the help of the company’s legal advisor Atul Dayal. Bhushan alleged that in 2007–8, the Singapore-based Biometrix Marketing Pte Ltd had invested in four Indian companies, Reliance Gas Transportation Infrastructure, Relogistics Infrastructure, Reliance Ports and Reliance Utilities. He produced a letter, purportedly written by the High Commission of India in Singapore in August 2011, which stated that this investment ‘needs to be examined’. Bhushan said that India’s envoy in Singapore had made enquiries about Biometrix following a request by the Department of Industrial Policy and Promotion in the ministry of industry and commerce in the government of India. The records of Singapore’s Accounting and Corporate Regulatory Authority showed that Biometrix had a relatively small equity capital of S$110,000 (Rs 55 lakh) and that the company had ‘just one room, which was closed most of the time’. Another Singapore-based company called Strasbourg Holdings had a 91 per cent stake in Biometrix though the company was not located at the same address, Bhushan added, quoting the letter from the High Commissioner.
GAS WARS: CRONY CAPITALISM AND THE AMBANIS Page 46
