v. The Government must ensure that the contractor responsible for delivering the major chunk of gas from KG-D6 gas field supplies, delivers the shortfall he still owes as per the Agreement at the old price of $4.2/MMBTU, rather than getting the benefit of the new price for previous commitments.
vi. The important recommendation of the Rangarajan panel of moving to a revenue-sharing arrangement with gas producers should be considered. A new Production Sharing Contract (PSC) model should be evolved that will do away with incentives to control production and manipulating investments, while assuring reasonable returns to the producers.
vii. The government needs to do a thorough impact study of gas pricing on different sectors of the economy, particularly the core sectors of power, fertilizer, steel and small scale industry specially those effected by pollution control laws/orders. The quantum of subsidy required to compensate these sectors should be precisely arrived at over the medium term. Similarly, the extent of ‘revenue loss or foregone’ should also be quantified over this period in order to grasp fully the implications of the price revision on the Union Budget.
viii. As gas pricing will have implications for power tariffs as well, State governments also need to be consulted and taken on board. Instead of hurrying with decisions carrying wider import and ramifications for the country as a whole, broader consultative process involving all stakeholders should be put in place.
ix. Divergence in views within the government cannot be ignored on such a major issue and therefore, the valid concerns expressed by key economic Ministries of the government like power, fertilizer and steel should be duly addressed before finalizing the policy.
In the light of the concerns enunciated above, the Committee would strongly recommend the Government to review forthwith its decision to raise gas prices and come out with fresh pricing which is more balanced and holistic and closely related to the audited cost of production and a reasonable return on the capital invested.
Yashwant Sinha, Chairman, Standing Committee on Finance, New Delhi, 2 August 2013
CHRONOLOGY
1998:
December:
24 December: New Exploration and Licensing Policy (NELP) announced by the ministry of petroleum and natural gas (MoPNG), government of India (GoI) to boost exploration and production (E&P) of hydrocarbons.
1999:
February:
A Reliance Industries Limited (RIL)-led consortium wins the global auction for an exploration block in the Krishna Godavari (KG) basin, now called D6 or Dhirubhai 6.
2000:
March:
24 March: Reliance Platforms Communications.com Private Limited is incorporated under the Companies Act 1956. (To change to Global Fuel Management Services on 10 August 2005, then Reliance Natural Resources Limited (RNRL) on 9 January 2006.)
April:
12 April: Production sharing contract (PSC) executed between MoPNG and the contractor – RIL with Canadian partner Niko Resources holding a ten per cent share. British Petroleum buys 30 per cent stake in the venture on 21 February 2011.
2002:
May:
17 May: Arun Shourie, then Union minister for disinvestment in the Atal Bihari Vajpayee-led National Democratic Alliance government clears disinvestment of Indian Petrochemicals Corporation Limited. RIL to buy 26 per cent of the equity capital of the former public sector company.
July:
6 July: Dhirubhai Ambani dies intestate. Instead of a will, he leaves a deed of partition dated 31 July 1999 which leads to the division of the Dhirubhai Hirachand Ambani Hindu Undivided Family.
October:
31 October: RIL announces gas finds in the block KG-D6; names them Dhirubhai-1 and Dhirubhai-3.
2003:
September:
State-owned power utility National Thermal Power Corporation (NTPC) floats global tender for sourcing 12 million standard cubic metres per day (mscmd) of natural gas/LNG to fuel expansion projects at Kawas and Gandhar in Gujarat for a period of seventeen years.
2004:
April:
21 April: Directorate General of Hydrocarbons (DGH) informs RIL that as per Article 3.5 of the PSC, the operator had to give a notice to Gol at least thirty days prior to the expiry of relevant phase either to proceed to the next exploration phase or to relinquish the entire contract area (except for any discovery area and any development area) and to conduct development and production operations in relation to any commercial discovery.
29 April: RIL submits to the government that it is not in a position to identify any area in the KG basin for relinquishment as required under Article 4 of the PSC.
May:
RIL’s Initial Development Plan (IDP), which envisaged capital expenditure of $2.4 billion, is submitted to the DGH. Expected production rate is 40 mscmd. (It was approved in November 2004.)
June:
11 June: DGH intimates RIL, that as per the PSC, the company was to surrender at least 25 per cent of the block area before entering Phase-II of exploration.
16 June: RIL enters into an agreement with the Uttar Pradesh state government to establish the ‘world’s largest gas-based power plant’ at Dadri, near New Delhi, based on KG gas to be piped across a distance of over 1,800 km from Andhra Pradesh.
July:
RIL wins NTPC tender quoting $2.34 per million British thermal unit (mBtu) price for KG-D6 gas.
November:
18 November: Mukesh Ambani says there are ‘ownership issues’ in the Reliance group but these were in the private domain; later retracts that statement.
2005:
January:
4 January: Mining lease application submitted, seven months after IDP.
June:
18 June: A private settlement is arrived at between the feuding Ambani brothers, Mukesh and Anil. It is brokered by their mother Kokilaben, assisted by leading Indian bankers like former ICICI Bank head K.V. Kamath. A family memorandum of understanding (MoU) is also signed. Anil resigns as joint managing director of RIL. Mukesh gets the energy and petrochemical business, Anil gets power, financial services and telecom.
August:
3 August: The RIL board approves scheme of de-merger. Anil declares that a non-compete agreement would be signed between his group and the parent group.
September:
13 September: RIL, now controlled by Mukesh, moves the Bombay High Court seeking its approval on de-merger, so as to effect the settlement.
December:
9 December: Bombay High Court sanctions de-merger. Financial services, telecom and power businesses transferred to Anil Ambani’s group, while elder brother Mukesh keeps the other businesses.
2006:
January:
10 January: RIL board approves the draft of Gas Sale Master Agreement (GSMA) to be signed with RNRL.
12 January: RIL board of directors approves pact under which 28 mscmd of gas is to be supplied to the Anil Ambani group.
27 January: Shares in RNRL owned by RIL and/or its nominees are transferred to Anil.
February:
7 February: RNRL board reconstituted and Anil’s nominees join it. The board alleges deviations in the original agreement.
July:
26 July: The MoPNG rejects RIL’s proposal to sell RNRL 28 mscmd of gas from the KG-D6 field for $2.34 per mBtu. RNRL’s request to lay pipelines to transport gas from Kakinada in Andhra Pradesh to Dadri, in western Uttar Pradesh also rejected by the ministry.
October:
20 October: RIL files addendum to IDP or AIDP with the DGH for approval. Asks for an upward revision of the costs to $5.2 billion for the first phase of delivery of 80 mscmd of gas. A revised proposal is submitted in November after technical consultations and correspondence with DGH. Cost for Phase II is also submitted for $3.6 billion, bringing the total revised figure to $8.8 billion.
November:
7 November: RNRL, now under Anil Ambani, moves Bombay High Court asking it to compel RIL to supply 28 mscmd gas at th
e agreed price of $2.34 per mBtu for 17 years. The judge asks the companies to settle the matter internally as per the family agreement, and also restrains RIL from selling gas to any third parties till final verdict.
December:
12 December: Management committee approves AIDP.
2007:
May:
3 May: Bombay High Court allows RIL to sell gas in the interim, subject to its final order. Ad-interim relief granted to RNRL. RIL restrained from creating any third party interest for 40 mscmd (28 mscmd claimed by RNRL and 12 mscmd offered in the NTPC tender).
18 May: Reliance Energy Ltd (REL), a Anil Ambani company, questions RIL’s move to set up gas-based power plants for their special economic zone.
18 December: REL questions move to set up gas-based power plants in Maharashtra.
June:
9 June: RNRL writes to the MoPNG suggesting that court order prevented it from granting approval to the price as was being sought by RIL.
19 June: RNRL seeks further restraining order against RIL with respect to the balance of 40 mscmd of gas.
August:
RIL invites bids for price and quantity for sale of KG-D6 gas and asks the MoPNG to approve sale at $4.32 per mBtu. RIL asked to make a few changes in the price calculation formula. RIL agrees.
September:
13 September: An Empowered Group of Ministers (EGoM), headed by then external affairs minister Pranab Mukherjee, approves that RIL can sell gas from its domestic contract area in the KG basin at $4.20 per mBtu, or nearly 80 per cent above the price of $2.34 per unit that had been agreed upon by the Ambani brothers.
October:
The EGoM, following the meeting on 13 September, sets the gas distribution priorities, in the following order: fertiliser, cooking gas, power and steel.
November:
The secretary, MoPNG requests the Comptroller and Auditor General (CAG) of India to conduct a special audit for PSCs of eight blocks for which regular audit had been carried out earlier.
2008:
May:
28 May: EGoM approves a gas utilisation policy, the manner in which the gas from RIL’s KG basin would be allocated across the various sectors in accordance with the government’s prioritisation.
June:
Anil Ambani announces plans for a merger of Reliance Communications or RCom (formerly Reliance Infocomm) with South African telecom giant, MTN. However, Mukesh Ambani cites right of first refusal under the family MoU, and opposes the deal.
July:
8 July: Mukesh Ambani seeks a conciliatory meeting with Anil Ambani, but the latter doesn’t show up. Mukesh refuses to reschedule the meeting. and says he is left with no option ‘but to adopt appropriate proceedings against RCom.’ Anil retorts that ‘RIL’s mala fide stand is now clearly established…’
14 July: Mukesh Ambani meets separately with prime minister Manmohan Singh, then finance minister Palaniappan Chidambaram and then Petroleum Minister Murli Deora. He argues that the idea of imposing a windfall tax was based on an erroneous assumption that refiners made windfall profits every time the prices of crude oil and petroleum products went up.
22 July: In a series of letters to prime minister, then Samajwadi Party Member of Parliament and general secretary Amar Singh urges the government to impose a ‘windfall tax’ on private refiners including RIL.
28 July: At a shareholders’ meeting of RNRL in Mumbai, Anil Ambani alleges the MoPNG was abetting the ‘plain and simple greed’ of RIL.
2009:
January:
30 January: Bombay High Court hearings conclude; interim order allows RIL to execute sale to various customers for five years in accordance with government policy.
March:
March 2009: MoPNG finalises gas allocation from KG-D6 for fertiliser and power companies.
April:
2 April: RIL announces that gas production has begun from D1 and D2 gas fields of KG-D6. Anil’s Dadri plant does not receive any allocation.
June:
15 June: A division bench of the Bombay High Court gives its final judgment, upholding the Ambani family gas agreement as in the MoU and directs RIL and RNRL to enter into a gas supply pact within a month. The court says the agreement to supply gas at $2.34 per mBtu as per the original terms of the contract should be honoured.
19 June: RNRL files a caveat in Supreme Court on the gas price issue after the Bombay High Court order favours its position on the price of gas in its dispute with RIL.
29 June: Taking serious note of the issue of land subsidence on account of gas extraction, the Andhra Pradesh High Court gives a ruling asking the Union Ministry of Environment and Forests (MoEF) to set up an expert sub-committee to examine, among other environmental aspects, the core issue of land subsidence (which was submitted in October 2009).
July:
1 July: RIL says it will appeal to the Supreme Court against the Bombay High Court order; says supplies not possible at $2.34 per unit, as it is bound by the government price of $4.20 per unit
3 July: RNRL appeals to Supreme Court to restrain RIL from supplying up to 40 mscmd of gas (apportioned by the EGoM as per its utilisation policy) to anybody other than itself.
4 July: RIL files a petition in the Supreme Court against the Bombay High Court judgment.
5 July: RIL makes the government a party in its petition.
7 July: Supreme Court issues notices to RIL, RNRL and the government.
15 July: Anil writes to the prime minister requesting that the petroleum ministry and other relevant government ministries and departments be directed to cease from ‘overtly and covertly attempting to intervene in [the] commercial dispute with RIL’.
18 July: Government of India files a special leave petition in the Supreme Court asking that it be made a respondent in the case. The SLP contends that natural gas is national property, arguing that the court ought to declare the July 2005 Ambani family pact null and void.
20 July: Supreme Court calls for counter-replies and fixes 1 September as date of hearing.
28 July: Anil ups the ante at the shareholders’ meeting of RNRL held at the Birla Matoshree Auditorium in south Mumbai. He alleges that the petroleum ministry was abetting the ‘plain and simple greed’ of RIL.
29 July: Samajwadi Party MPs raise the gas issue in the Lok Sabha. Mulayam Singh Yadav says that the government was denying gas to power projects in his home state of Uttar Pradesh. The project Mulayam primarily had in mind was the proposed gas-based power plant at Dadri.
August:
3 August: Murli Deora reiterates in Parliament that the government has nothing to do with the private dispute between the Ambani brothers and was doing everything to protect the interests of the government and the public.
4 August: Regulator DGH rejects Anil Ambani group’s charges of acts of omission and commission in allowing capital expenditure of KG-D6 gas to be hiked from $2.4 billion to $8.8 billion.
6 August: Deora clarifies that the gas price the government had fixed is not high. He says the price of $4.20 per mBtu is not just cheaper than the price of gas supplied by other private firms in India, but also lower than the prices of alternative fuels such as naphtha, furnace oil, and liquefied natural gas.
26 August: Pranab Mukherjee acknowledges his friendship with Dhirubhai Ambani but distances himself from the dispute between the brothers.
August 28: RIL says NTPC was told gas price of $2.34 was subject to government approval.
September:
1 September: Government amends its petition in the Supreme Court clarifying that it no longer wanted the family agreement to be declared null and void.
14 September: RNRL accuses RIL of charging illegal marketing margins.
16 September: The Anil Ambani group’s RNRL asks the court to implead the public sector NTPC as a party in the dispute because it believed its own interests coincided with those of NTPC.
17 September: Interview with P.M.S. Prasad, RIL executive director published in
the Business Standard.
24 September: NTPC signs agreement with RIL to buy a part of natural gas, other than the quantity under dispute, at $4.20 per unit.
26 September: Mani Shankar Aiyar, former petroleum minister, speaks to a select audience on the natural gas issue at the Saturday Lunch Club at the India International Centre in New Delhi.
October:
5 October: RIL says chairman Mukesh Ambani signed pact on natural gas with Anil Ambani Group in his personal capacity without approval from other board members.
6 October: Challenging the Bombay High Court judgment in the Supreme Court, RIL seeks to undermine RNRL’s claims to the gas on the ground that the latter had not been able to set up a power plant ready to receive gas.
GAS WARS: CRONY CAPITALISM AND THE AMBANIS Page 56
