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Rediff.com  » News » Should govt pay Reliance $14.2/mmBTU for K-G gas?

Should govt pay Reliance $14.2/mmBTU for K-G gas?

Last updated on: November 1, 2012 01:52 IST

Should govt pay Reliance $14.2/mmBTU for K-G gas?

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Sheela Bhatt in New Delhi

Arvind Kejriwal and Prashant Bhushan have successfully managed to blow the lid off the 'crony capitalism' that is flourishing in the country today, and in the process delivered a crushing blow to the UPA government. Sheela Bhatt analyses

Activists Arvind Kejriwal and Prashant Bhushan's press conference on Wednesday about the Krishna-Godavari basin gas exploration contract between Reliance Industries and the central government has done something that the Left parties and select media organization were unable to do.

As it happened in the case of Robert Vadra, unexpected media coverage has been given on television to the story that will embarrass Mukesh, India's richest businessman, and the United Progressive Alliance government.

Mukesh's public image took a beating, as unflattering details of RIL's pressure tactics were revealed on Wednesday.

Credibility, which cannot be bought easily by Ambani's awesome wealth, was damaged by Kejriwal and Bhushan.

Whatever transpired between the government and RIL over the K-G basin contract shows that both sides lack credibility in keeping national interest at the centre of the deal.

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Kejriwal and Bhushan got the attention of lakhs of television viewers to the least discussed issues in public like how Ambani was making his billions through favourably-struck contracts in New Delhi; how the policy for natural resources are made to favour private people more than the country; how the Bharatiya Janata Party government and later the Congress-led UPA government succumbed to the pressure of the business house that boasts revenue above Rs 2,50,000 crore and net profit in range of Rs 20,000 crore.

Rediff.com had extensively covered the issue in an interview with crusader and then Rajya Sabha member, Tapan Sen in September 2011. And on October 2011, Sujay Mehdudia had interviewed Sen for The Hindu.

But somehow the serious issues that the Indian government was facing concerning Ambani's K-G basin were never taken up in a big way by either the opposition parties, including BJP, or the television media for obvious reasons. But Kejriwal demolished the barriers, some real and some imaginary.

He has forced the television screen to project what he has had to say. His press conferences, which are built on suspense, are helping him build the plank of his political party.

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Should govt pay Reliance $14.2/mmBTU for K-G gas?

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Politics apart, $14.2 -- that is the price RIL is asking the government to pay for per Million Metric British Thermal Unit of gas from the K-G basin. (One cubic foot of natural gas produces approximately 1,000 BTUs, so 1,000 cu ft of gas is comparable to 1 MBTU. MBTU is occasionally expressed as MMBTU, which is intended to represent a thousand thousand BTUs).

The issue is under discussion in the government. The press conference was well-timed and is likely to strategically help a section in the government who does not want to succumb to the pressure from Reliance.

Reliance has the contract -- signed in 2000 -- to extract oil from K-G basin.

Under the revised agreement of 2009 with the government, Reliance is supposed to sell gas at $4.2 per mmBTU up to March 31, 2014. Much before 2014, now, RIL has been demanding that the price be increased to $14.2 per mmBTU.

Tapan Sen, who was a member of the standing committee on petroleum and natural gas, has been demanding since 2010 that urgent investigation be held into the "nexus" between the Manmohan Singh government and Mukesh Ambani's Reliance Industries on K-G basin .

His voice did not reach millions despite his brilliant follow up of the issue. But Kejriwal has just managed that.

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Although oil and gas explorations are complicated subjects that involve high and rear technology, international diplomacy, knowledge of international markets and understanding of the volatile global mechanism of pricing of such natural resources, the tussle between the petroleum ministry and Reliance is NOT complicated at all.

Because mercifully, Jaipal Reddy -- till recently minister who dealt with the issue -- has been exemplary in taking care of public interests versus private interests.

His own ministry's opinion -- given in writing to the Empowered Group of Ministers -- is worth bringing to the attention of the entire country. Reddy mentioned in his note to the EGoM that if the Manmohan Singh government accepts Mukesh Ambani's demand, it would result in an additional profit of Rs 43,000 crore to RIL in the next two years at current levels when its K-G basin's production is low. 

The petroleum ministry further stated that accepting reliance's proposal of $14.2 per MMBTu will put an additional financial burden of Rs 53,000 crores on the central and state government.

Reddy also cautioned the government that this would result in higher electricity and fertilizer prices in the country or a higher subsidy burden on the government.

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Image: Jaipal Reddy


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Kejriwal gave the copies of Reddy's letter where these things are written in black and white. He sought to know why Reliance was not exploring all the gas fields allotted to them.

Kejriwal said that in 2006, Mani Shankar Aiyer was removed and Murli Deora was brought in the ministry to increase RIL's capital expenditure from $2.39 billion to $8.8 billion.

He objected strongly to the contract between Reliance and British Petroleum where the former sold its stake in the K-G basin at whopping price of $7.2 billion.

Kejriwal said, "Ownership rights of this gas belong to the people of India. RIL is just a contractor hired by the government to extract gas. Strangely, RIL sold 30 per cent stake in 21 out of the 29 oil blocks to British Petroleum in July 2011 at $7.2 billion."

Of course, Reliance and the government will have some convincing answers, but the latter has preferred silence while Reliance gave a brief press release which rubbished the charges in a routine manner.

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Image: British Petroleum CEO Robert Dudley and Mukesh Ambani, meeting Commerce Minister Anand Sharma in New Delhi on September 28, 2011.
Photographs: Press Information Bureau

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The government ignored Kejriwal's provocation -- "Kya Congress Mukesh Ambani ki dukaan hai (Is the Congress party Mukesh Ambani's store)?"

To score a political point, Kejriwal further said, "The country is not run by Manmohan Singh. It's run by Mukesh Ambani."

Kejriwal tried his level best to brand the UPA government and Ambani with crony capitalism that is flourishing in the country.

To prove Kejriwal wrong, the government will now be forced to tread with caution in fixing further increment of gas price of K-G basin that will be decided in near future.

Kejriwal has cautioned the country: Remember the figure $14.2 mmBTU. Let us see how much Ambani gets from the government. The difference is too high from current rate of $4.2.

In so far as the question of who runs the government is concerned, we will soon know that when Reliance is awarded a revised gas price.

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