'Register An FIR'

Delhi government on Tuesday (February 11, 2014) directed the Anti-Corruption Branch to register an FIR against the chairperson of Reliance Industries Limited Mukesh Ambani, union petroleum minister M Veerappa Moily, former petroleum minister Murli Deora and former director general of Hydrocarbons VK Sibal under various sections of the Prevention of Corruption Act (PCA).

Chief Minister Arvind Kejriwal described the details mentioned in the complaint received by the Delhi government as shocking, and which were an assault on India’s economic sovereignty and amounted to an anti-national activity.

The CM has demanded that the central government should put its decision to hike the prices of gas in abeyance till the time the probe into the matter is completed.

COMPLAINT :

The decision to order a probe was taken by the Delhi government after the perusal of a common complaint filed by eminent citizens—former Cabinet Secretary TSR Subramaniam, former Navy chief Admiral RH Tahiliani, former secretary to government of India EAS Sarma and noted Supreme Court lawyer Kamini Jaiswal.

The complaint stated that gas prices in the country will be doubled from April 1 this year due to the alleged active collusion between the RIL and some ministers of the central government. In case this price hike is allowed to take place, it will make the life of common man miserable since it will have a cascading effect on transport, domestic gas and even electricity prices.

The impact of this hike in gas price would cost the country a minimum of Rs 54,500 crore every year, and in addition to this the central government allowed the RIL to make a future windfall profit of Rs 1.2 lakh crore.

This will have an adverse effect on the household of a common man who uses piped and compressed natural gas (CNG). Farmers will suffer since prices of fertilisers will go up and so would the prices of electricity being generated from gas-based power plants.

Since the decision to double the prices of gas will become effective from April 1 this year, when the term of the UPA government would almost be over, it should have left the decision on gas prices to the next government and this hurry shows a malafide intention of helping this particular corporate house, the RIL.
The government decision to hike the gas price from existing $4.2 (Rs 262.25) per mmbtu (One million British Thermal Unit) to $ 8.4 (Rs 524.20) per mmbtu will make the gas prices in India one of the highest in the world.

The gas prices have been hiked with the sole intention of benefitting the RIL and no attempt was made to determine the cost of production independently and accurately.

To add to this fraud, there is no explanation as to why when the entire domestic production is consumed internally, then why are the prices fixed in US dollars?

The government took no action against the RIL for its deliberate drop in production and ignored the CAG report and the then Solicitor General’s opinion (in May 2012) and on the contrary accepted the RIL demand for doubling the gas prices from April 1 this year. This is a clear case of causing unimaginable loss to the government exchequer and selling gas at exorbitant price to the common man.

The fluctuation in dollar rate will only lead to a further increase in the gas prices.

Documents also reveal that the central government ignored letters by several MPs, including CPI(M) Rajya Sabha MP Tapan Sen, who had highlighted that the RIL demand for $ 8.8 billion to be spent on infrastructure at KG-D6 should be rejected was ignored and the RIL was allowed a future windfall revenue of Rs 1.2 lakh crore ($ 20 billion).

Even if the central government’s argument that new prices would bring in more investment in exploration, what is the justification of raising gas prices from existing fields ?

The central government (particularly petroleum ministry) has connived with the RIL to help it in making a windfall profit at the cost of common man and taxpayers by having allowed it to charge a new price for gas that it had already undertaken to produce.

The cost of production of gas is much less than $ 2.34 per mmbtu. The fact that this company (RIL) had signed long term agreements with NTPC and RNRL for supplying gas at that rate for 17 years clearly shows it was making profits at that price also. RIL’s partner NIKO has a 25 year contract with the Bangladesh government to supply gas at the rate of $ 2.34/mmbtu.

A letter by the RIL to Director General Hydrocarbons (DGH) giving its cost calculations shows the cost of production is less than $ 1 per mmbtu. Then why did it seek a hike in gas prices and why did the central government agree to it ?

JURISDICTION :

Existing laws and rules empower the ACB to take up the probe into complaints of corruption about alleged offences which take place within its territorial jurisdiction. The ACB enjoys concurrent powers like the CBI to investigate corruption cases.

It has been pointed out in the complaint that since most of the alleged offences, including the most important decision to finalise the exorbitant hike in prices of gas, have been committed in Delhi, therefore the investigation be referred to the ACB. This decision will increase the hardships of people of Delhi and could also lead to non-availability of natural gas in the capital, therefore a thorough and impartial probe by the ACB is important.

BACKGROUND OF THE CASE :

2000 : KG-D6 (Krishna Godavari basin off Andhra coast) block with a contract area of 7645 sq kms awarded to a consortium of RIL and Niko Resources Limited. Central government and this consortium entered into a Production Sharing Contract (PSC) for exploration of natural gas.

2004 : RIL signed a contract with NTPC to supply gas for its power plants at $ 2.34 (Rs 146.90) mmbtu (One million British Thermal Unit) for 17 years. It also signed a similar contract with a company of the Anil Dhirubhai Ambani Group called the Reliance Natural Resources Limited (RNRL)

2007 : Under the RIL pressure, the then petroleum minister Murli Deora revised the gas price to $ 4.2 mmbtu (Rs 262.25), since the company refused to supply gas to the NTPC and RNRL on the agreed price.

2010 : Supreme Court ruled that gas belongs to the people of the country and the government should act as a trustee of the people’s resources.

UNDUE FAVOURS BY PETROLEUM MINISTRY :

The report on production for the week 10-16 June 2013 states that only 9 out of 18 wells are in production in the KG-D6 basin and remaining are closed. Gas sales are at a mere 18% and the ministry, instead of taking action and cancelling this block allotted to the RIL, colluded with it and has now given into its unconscionable demand of doubling the gas price to put an unbearable burden on the people.

CAG REPORT HAD POINTED OUT THE IRREGULARITIES :

The CAG in its detailed report tabled in parliament remarked that there is strong evidence that the RIL gold plated (inflated) its capital expenditure and made unjust enrichment twice – by over invoicing the capital costs and by ensuring that the capital costs take a longer time to recover.

The RIL was required to place orders for its plant, machinery and other requirements through international competitive bids. The CAG found that bids were arbitrarily rejected to favour some parties. Just one company named Aker Group got many contracts. CAG has specifically mentioned serious deficiencies in the award of $ 1.1 billion order for a floating production, storage and offloading (FPSO) vessel to the Aker Group, despite it not having any experience in this business. Several such single bid contracts were handed over to the Aker Group and the amount totals upto $ two billion, according to CAG estimates.
This is a clear example of RIL having siphoned off money to make huge profits.

DIRECTOR GENERAL HYRDOCARBONS FACILITATED THE FRAUD :

Not only did the DGH accept the increase in RIL capital costs, which under the contract it need not have accepted, it did so in unseemly haste. It took the DGH only 53 days to approve the cost increase of nearly $ 6.3 billion.

RIL sold off 30% of its stake in 21 of the 29 blocks to a foreign company – British Petroleum in July 2011 at $ 7.2 billion. By allowing this, the government enabled the RIL to obtain double recovery of its investment – once by stake sale and also from cost and profit petroleum.

The government allowed the RIL a deliberate drop in its production and the company started demanding huge revision of rates from the government even before the expiry of the period ending March 31, 2014.

MINISTERS WHO DID NOT SUPPORT RIL WERE SHOWN THE DOOR :

Two petroleum ministers during the last 10 years, Mani Shankar Aiyar and S Jaipal Reddy, who did not work according to the wishes of the RIL, were shifted out of the ministry.

Mr Aiyar did not agree to the RIL argument that in order to double the production the investment will have to be increased four times and was shifted out.

Similarly, Mr Reddy, who in May 2012 issued a show cause notice to the RIL on the legal opinion given by the then Solicitor General Rohinton Nariman that the company had failed to fulfil its obligations and had indulged in wilful breach of the Production Sharing Agreement, therefore why should its contract not be cancelled – he had to lose the ministry. 

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Also See: Outlook's July 15, 2013 cover story: The Great Gas Heist

And another story from our July 8, 2013 issue on how the government’s single gas-pricing formula is designed to hurt consumers, help Reliance: All Heads In The Oven

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