As an Indian We Cannot Allow Squandering of Our Natural Resources
At the revised price of $4.42, under the profit sharing scheme with government of India for KGD6 gas field, a large share of profits would have also accrued to the government. To avoid this, Reliance took the simple route of gold-plating its capital costs in the gas field – it claimed that it would double its production from 40 MMSCMD to 80 MMSCMD by this added investment. In actual practice, the gas yield dropped to about 30 MMSCMD even though the capital costs went up by 4 times! The CAG submitted a scathing report on the actions of both the Petroleum Ministry and Reliance on which the government has yet to take any action.
If all this was not enough, the UPA government wanted to reward Reliance even more. It set up a committee under Rangarajan, the former governor of the Reserve Bank for fixing the gas prices. The Rangarajan Committee’s report makes strange reading. It suggested that Indian gas prices be pegged to a 12-month average of the price of LNG imports to India and the price prevailing in the US, Europe and Japan. Why gas produced in India should be pegged to the market price of imported gas or to gas prices in Japan and Europe who import all their gas, is impossible to fathom.
After all, gas found in India or in India’s economic zone in the seas is Indian peoples’ property. If we give a license to a private or a public sector company to develop such gas fields, yes their costs including reasonable profits should be compensated. But why should they make wind-fall profits merely because the international price of gas rises? In what way is the price of gas in the international market linked to the cost of producing gas in India?
International price parity to Indian producers would make sense only if they are importing the gas or if there are large amounts of raw materials they have to import. Such is not the case here. So why this need to peg Indian produced gas prices to international market prices?
The implications of the Rangarajan Committee’s recommendations are enormous. According to the Ministry of Fertilisers and the Ministry of Power, for every dollar increase in gas price per mBTU, the annual fertiliser subsidy rises by Rs.3,155 crore and the costs to the power sector for fuel increases by Rs.10,040 crore per annum.
The Rangarajan Committee had suggested a graded rise of the gas price starting from $8.8 to about $14 by 2017. Taking only $8.8 as the basis, the annual outflow in terms of subsidies to the fertiliser sector is Rs 16,992-crore and increase cost of fuel for the power sector is Rs 43,360 crore. We are talking of a total amount of Rs. 240,000 crores for the four-year period of 2014-2017. The benefit of this increased price to Reliance is equally staggering – it is of the order of Rs. 80,000 crores!
The Petroleum Ministry submitted a note to the EGOM headed by AK Anthony for accepting the Rangarajan Committee’s proposal of $8.8. Already, the Fertiliser and Power Ministries have submitted detailed notes on this issue to the EGOM opposing this move. Though the Finance Ministry had earlier rejected linking Indian gas prices to international prices, it has suggested a watered down formulae which would lead to a rise of gas price to the level of about $6-7. The basis of such a compromise formulae is again not clear. Planning Commission under Montek has more or less echoed the Rangarjan Committee’s proposal.
Initially, the EGOM lead by Anthony was supposed to decide on the price of gas as also its allocation. It is now understood that the Cabinet Committee on Economic Affairs would be taking a decision on gas pricing, restricting the Anthony led EGOM to only gas allocations. It is also understood that Moily is now arguing for a lower increase, a price of around $6-7 initially.
The question here is not what should be the price of gas but the principle of pricing. Is it to be based on international market prices? Or is to be based on some concrete understanding on how we should price our natural resources? Tomorrow, shall we price our coal and also our drinking water on the market price of coal and water in the US, Japan and Europe as the Rangarajan Committee would have us do for gas?
The key issue here is the one of pricing our natural resources –- be it tangibles like coal, gas and water or intangibles such as airwaves. When it comes to airwaves –- the spectrum -– the government is arguing that it should be kept low in order to lower subscriber prices. When it comes to something even more basic –- costs of energy -– then it wants them to be linked to international prices. This might appear to be contradictory, till we look at the beneficiaries. In the case of gas, it is Mukesh Ambani, for coal or the spectrum, it is Anil Ambani. Ambanis’ interest drives this government, whether it is gas, coal or spectrum!
The Left parties have protested against this completely bogus proposal of linking gas prices to international prices. Tapan Sen, CPI(M) MP and a member of the Parliamentary Standing Committee of the Ministry of Petroleum has pointed out that in Oman, KRIBHCO and IFFCO get gas at 0.77 dollar per mBTU from 2006 and it has increased only by 15% after 6 years. Nowhere in the world is the price of gas pegged to international prices, except perhaps for some banana republics, which India is now rapidly in the danger of becoming. Gurudas Dasgupta, CPI MP, has talked in a press conference last week about this new mega scam and pointed out the adverse impact on the fertiliser and the power sector.
Moily’s response is quite amazing. He has responded by saying that since public sector companies such as GAIL and Indian Oil are major gas producers, they would also benefit and not only Reliance. The issue here –- which we believe that the Minister is not so obtuse that he does not understand –- is that while Government companies such as GAIL and India Oil may benefit but the Government will have to shell out even larger amounts as subsidies to the fertiliser and the power sector.
The distribution companies in the power sector are currently in the red by Rs. 2 lakh crores, a position which will worsen even more with this hike in gas prices. Already, 28,000 MW of gas plants are either commissioned or in the pipeline. All of them will become sick if the gas price rises beyond $5. We then have to either write off the investment in these 28,000 MW of power plants or subsidise the huge gap between the gas and coal prices.
Moily has also said that without raising gas prices to international levels, we will have to import gas which will cost us much more than current gas prices. Again, this is funny logic; we will have to pay imported prices for all our indigenous gas so that we do not import gas and pay imported gas prices!
Reliance is holding the country to ransom by cutting down on gas production and starving existing power and fertiliser plants linked to KGD6 gas field allocations. Reliance has cut down its production from 56 MMSCMD which it was doing at one time to about 34 MMSCMD currently. This has already impacted a number of plants, particularly in Andhra.
Tata and Adani had also adopted a similar strategy with success. They cut down their power production when the cost of imported coal went up and claimed that unless their contracts were changed, they would not be able to supply power. In both cases, nobody talked about the other solution. If KGD6 gas fields and Tata’s and Adani’s power plants cannot be run under the existing contracts, the government has the right to nationalise them and run them on its own. But then, under the current dispensation, nationalisation is a dirty word, while capital, as well capitalists are sacred.
The gas pricing issues brings out once again how deeply this government is compromised; or it is ideologically so blinkered that it does not see plain common sense. Knave or fool, take your pick.