The KG Basin Gas Deal & the Curious Story of the Dogs That Didn’t Bark

So the “supari” that had been issued against Arvind Kejriwal after his filing of the famous Gas FIR has been executed by the BJP and the Congress and the Aam Aadmi Party has been shown the door in Delhi, at least for the time being. But the burning plume of gas left behind at the Ambani well-head will not subside as conveniently, and indeed will only become more intense as the elections draw nearer.

Kejriwal

Kejriwal has made a very serious charge against the Govt. and Mr. Ambani, as have four of the most respected citizens of the country, who, incidentally have had a ring-side view of the establishment’s manner of functioning.

The registration of a criminal FIR against a Union Minister and Mukesh Ambani, no less, is absolutely unprecedented.

Attaching criminal intent to a decision of the Union cabinet is unparalleled. Alleging windfall benefits of Rs. 54000 crores per annum to Mr. Ambani is outrageous (if true) and scurrilous (if not).

The public waited for a thunderbolt of denial from the Government or the Congress, a White Paper on the price revision of the gas from the KG Basin, at least a detailed statement from the Minister in Parliament (between the knife wielding and the pepper spraying side-shows) or the spokesperson on TV.

MoilyAll we got, instead, was the epiphanic revelation from Mr. Moily that Kejriwal was ignorant.

The Govt. said that it would go to the Supreme Court, its favorite haunt for burying chestnuts it finds too hot to handle. Not a word of explanation for the public.

The Opposition was equally subdued.

Here I refer to the BJP because we don’t expect the two Madams or Mulayam Singh or Mayawati or Lalu Yadav or Sharad Yadav to bother about a few thousand crores of public money.

jaitelyThe BJP was strangely silent in the middle of a Parliament session, when here was a heaven sent opportunity to stall Parliament for the second year in a row and set a Guinness record! All we got was an erudite statement from Mr. Jaitley about how Kejriwal was assaulting the federal structure (an admission of sorts, some would say, that Mr. Ambani IS the federal govt.!)

Equally surprising was the demeanour of the elitist press and TV who suddenly appeared like a shoal of piranha going on a vegetarian diet. The news of the FIR was mentioned in passing, a few “experts” were hauled in front of the camera to mouth technicalities that no one understood or hosannas to Mr. Ambani that everyone did, and then the matter was dropped and the flush pulled. Period.

And this is the same media that spent DAYS on Kumar Vishwas’s poor joke about nurses and went apoplectic about Kejriwal moving into an official house or sitting on a dharna.

There were no sound bytes from the regular cogniscenti or glitterati who otherwise line up every night on prime time to air their views on things that bother them. Presumably, 54000 crores is just loose change they couldn’t be bothered with.

Readers of Sherlock Holmes will certainly recall that story (I forget the name) where Holmes is investigating a blind murder in a country manor. There are no clues- no witness, no signs of forced entry, no evidence left behind, even the guard dogs had been quiet that night. And that is what Holmes found curious-why did the dogs not bark?

It is in the nature of dogs to bark at intruders, and their not doing so was the clue which Holmes had been looking for and which ultimately led him to solving the case.

Why is there no barking now?

There is more to the KG Basin story than meets the eye and the Govt. trying to hide behind the Rangarajan report won’t wash. This report was submitted in December 2012, long after the KG gas was allotted to Mr. Ambani’s RIL.

The PSC (Production Sharing Contract) with RIL was based on the then existing price mechanism which stipulated a cost plus formula, not a market price (which RIL has now got).

Kejriwal is quite correct when he maintains that the contracted price was $2.34 per MMBTU. This was revised in 2007 to $ 4.20 in 2007 under the new NELP (New Exploration and Licensing Policy).

It is a moot and debatable point whether RIL could have been given the benefit of the NELP formula when its contract predated it and should instead have stood on its own legs.

However, even if we accept the 2007 price revision, the current proposal to further increase it to $ 8.40 certainly needs a deeper investigation, or at least a convincing explanation from the govt. True, the 2007 decision of $4.20 provided for a review of the price after five years, that is, w.e.f. 1st April 2014.

But this revision should have been allowed on price indexation, not by a jump to parity with market prices, which is an entirely new mechanism which did not even exist in 2007, let alone when the contract with RIL was signed. Once again, Kejriwal cannot be faulted with this assertion.

The Govt. says (when it deigns to speak) that this latest revision is based on the Rangarajan Committee’s recommendations.

True, this Committee has suggested moving away from the Cost plus formula which is difficult to monitor or audit owing to the gold-plating of costs involved.

It has thus recommended that gas prices be based on the weighted average of two prices-[a] the price received by producers at the exporting country well head for imports to India, and [b], weighted average of gas prices available at international hubs of three regions.

The Govt. claims it has simply applied this mechanism to now revise RIL prices to $8.40.

This appears to be patently erroneous, if not worse. For the Rangarajan Committee’s recommendations come with a very specific caveat that the new mechanism would apply prospectively, and not retrospectively. I quote two of these caveats:

PARA 1.8 OF THE SUMMARY OF RECOMMENDATIONS

“All the PSCs signed by the Govt. upto the ninth round of NELP will continue with the existing fiscal model, ensuring the sanctity of these contracts.”

PARA 4.9 OF THE SUMMARY OF RECOMMENDATIONS

“It is clarified that the proposed pricing formula would only apply prospectively and is not proposed for application to gas prices already approved.”

It could not be clearer from the above that RIL could not have been given the benefit of the Rangarajan Committee’s new pricing formula because the KG Basin contract was signed before the ninth round of NELP. In fact, the Committee was well aware of the fact that RIL had been constantly trying to link its prices to international prices and had been pushing for import parity pricing. The Committee categorically rejected this as (in its own words) “this will give a huge monetary benefit to domestic producers.”

How then are the Committee’s recommendations being applied to KG Basin gas to give such a huge benefit to RIL?

Not only is the govt. not clarifying this, it is trying to drag other red herrings across the trail to throw us off the scent. It is now claiming that since ONGC and GAIL produce 70% of the country’s natural gas (and private players only 30%) the major benefit will go to PSUs and not RIL.

How is this relevant?

  • For one, the public has a right not to be robbed by anyone-the govt. or the private player.
  • Secondly, sharing of the loot with the govt. doesn’t make it legal.
  • Thirdly, the govt.’s net gain will be nil because it will have to increase subsidies on fertiliser, power, CNG etc. to offset the hike in gas price, whereas RIL will have to do no such thing when it goes laughing all the way to the Bank with its 54000 crores.

It is clear that there can only be one gainer in this dubious transaction.

We may be wrong in our assessment. But we have a right to know the full facts.

It does not behove an elected govt. to treat its citizens as mentally challenged and not worthy of being apprised of the truth on an issue of such financial magnitude.

It behoves it even less to hide behind an army of expensive lawyers and take cover in a thicket of legalese which it will take years to penetrate. And it is equally incumbent on our other political parties, media and social organisations to demand answers.

Do not bite, but at least bark.

Avay Shukla retired from the Indian Administrative Service in December 2010. He is a keen environmentalist and loves the mountains. He divides his time between Delhi and his cottage in a small village above Shimla. He used to play golf at one time but has now run out of balls. He blogs at http://avayshukla.blogspot.in/

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24 Comments

  1. says: satish

    The dogs don’t bark on the insiders. Again for what ever mistakes AAP would have made (and personally I don’t think many) the guts out showed for this cause is admirable. this crony capitalism and lot of public resources is a ‘system’ of governance well instituted by the political parties be out congress or BJP. thanks to the social media, civil society and people like the writer here that the otherwisw ‘mentally challenges’ masses get their shock therapy and inch then close to the reality. again Mr Avay Shukla, amazing clarity of thought and ability to put them across to the commoners.

  2. says: Vishal Santoshi

    I have a two questions.

    In this case, who found the gas ? Was it ONGC or RIL?

    Is it also true that once wells were operationalized and bids for the wells put forth, the most profitable ( as in the most productive ) of the wells were the ones that RIL got rights to ?

    It is rumored that RIL profited at ONGC’s expense with official connivance of course.

  3. says: VBS

    Excellent article. These are all basic questions that the Govt. needs to answer and explain to the people despite the findings of Rangarajan Commitee. The other question is, when the production is domestic, consumption is domestic, then why the pricing is in dollars? Just to get the advantage of increased dollar value quite often?

  4. says: mike rana

    A similar story also prevails for the power supply tariff in Gujarat, where Adani’s twisted the government’s arm to take the quota of coal from the government, and still supply power at double the price that the government agencies were willing to supply. So Modi will arrange similar contracts in every state … beware … we are in for massive trouble

  5. says: piyush gupta

    Isn’t a major point that the gas already belongs to India. So we should be paying RIL only the money to help us extract it. The market price of gas is not relevant as that includes the value of the gas itself plus something for the cost of extracting it plus a profit. If we had to pay market price, we might as well keep the reserves in the well for a rainy day and buy gas from the market at $8.

    Finally, if i google the price of natural gas in NY i see about $5-$6. It was $8 a few years ago. If this is the correct benchmark then we will actually be paying $8 to RIL to extract our own gas when we can buy gas from the market at $6. Am i being too simplistic?

  6. says: Zafar

    As some one here said , dogs are well fed and pretending to sleep… can wake up only those who are sleeping , not those pretend to sleep …. yes, also as some one else said elsewhere , what we can we do between the moron & the murderer ? …. can only support AAP-ka AK (47)…. & congrats to Avay for such clarity & erudition in presenting the subject.

  7. says: V K Shah

    Sir,

    I strongly agree with the views expressed.

    We may recall Reliance treated gas contract as they have won Gas (Dropadi) in game / context and mother ordered the two brothers to share the gas between them and do not bother about any body in the country) and entire GoI and opposition kept mum for many years. Subsequently after allowing time to Reliance GoI asked court that the property belong to GoI / Public and not to Reliance. Can any body accountable for such a mess ?

    Thanks & Regards

  8. says: bssrikanth

    In the light of all the questioning by common man/ women ( the millions of mentally challenged Indians as the ” Intelligentsia – elite economists and Financial community/ analysts and related interest groups of Mukesh Ambani would like to describe “Aam Aadmis/ Aurats” ) to why RIL is being bestowed with Rs.55k crore windfall in the next fin. year, unless something wrong with the KG gas wells from a production and transportation point of view, its clearly a foregone conclusion that the “Dogs which were supposed to bark” have been well fed with Atkin’s diet over years/ decades to obey their masters come rains or winds.

    A notable piece on this was a article by Mr. Swaminathan Ankleswar Iyer (” summary of article in ET/ TIMES of India being that Kejriwal and all his blind followers on this issue are talking like kids with no understanding of the dynamics of the business and that 1. RIL is getting less than the international price for now, 2. thry are producing only 10% of the total gas consumed in India, so why the hurrah!!)… so is this indirect incenstivisation to RIL for giving our country its own extracted resource at market prices when we could import and keep this KG gas happily sleeping in its respective wells in the basins.

    Secondly there is need on the govt./ RIL ( a great service they may do as part of corp governance stds.) to clearly indicate what is the weighted avg. ratio that is been taken for the price determinants as mentioned by Rangarajan committee. ( example is it more weightage for one of the intl. gas hub benchmark price vis-a vi the other , if so why??).

    Thirdly, with the argument of production of RIL being only 10% of the total gas produced in India, the arugement seems to be that this is like “aka some kind of business stress payout or benevolence of being the first to mine the KG basin”..

    AAP is definitely going to make this a big issue this elections

  9. says: Broadsword

    The Sherlock Holmes story that features the curious incident of the dog in the night is “Silver Blaze”, from the volume “The Memoirs of Sherlock Holmes”.

    Keep hammering away, Avay

  10. says: Sanjay Singh

    If what you say is correct, Mr Moily should be in Jail for misleading and robbing the nation. But few people that I talked to, say that, agreement even before NELP 9 always talked of market pricing or to be more precise ‘Arm’s length pricing’.

  11. says: V K Shah

    Finance Minister and Petroleum Minister is commenting on Kejriwal allegation that Kejriwal does not understand economy.

    What kind of economy this what GoI is following give free coal mines, spectrum, concessional bank loans, freebies etc to industry ?? Without following market value in spite of pointed out by CAG / CVC etc. That is one economy and when consumers / public have to pay for gas it should be market value ?

    Can any body explain for giving own economy and forpaying market economy ??
    Further can a contract be amended without following the T&C ?
    v k shah

  12. says: KUMAR

    Very good analysis. Very sorry state of things, truth is always buried deep and delayed to come out from legal and other tactics. People of this country deserve a full reply from UPA and Moilly.
    It’s rightly said “India is a rich (resources) country but its people are poor (made poor)!
    Jai Hind

  13. says: Rohit Sakhwalkar

    Mr. Surya P. Sethi has written of this whole thing in 2010 or 2011. Why are you waking up to these questions now?? Please google it out if you really want to readup on it.

  14. says: Rohit Sakhwalkar

    You can search for Mr. Surya P. Sethi’s video explaining the prices uploaded in 2011. I wonder why everyone in the media is blind?

    1. says: Avay Shukla

      Mr. Sakhwalkar, you may like to read the open letter which Mr. Sethi has written to the Prime Minister on 23.12.2013 where he has termed the gas price revision another scam. He has brought out how the original bids were manipulated to ensure that RIL won the contract for the KG basin, how it has consistently violated its PSC, how the govt. has failed to enforce the terms of the PSC etc. He has also questioned the very rationale of the Rangarajan Committee’s recommendations. As a former Pr. Advisor ( Power and Energy) to the GOI his words have to be given weightage. I agree this is a very complex and highly technical issue, but the govt. cannot hide behind these complexities and refuse to go public with the relevant details and facts. The public, and not just the courts, has a right to full disclosure. RIL also needs to go public to allay all doubts. By not doing so, public suspicions only get reinforced.

    2. says: Venkata

      You can people say any thing, But the final point comes to is this documented and signed by the Government and RIL. If not this will be a scam in the next 5 yrs/. No point in crying at that time.

  15. says: Sheel

    Clearly written and clearly understood!

    It’s likely we have come across a business Idea that can be pursued Part time, alongside the Job to make extra income.
    But, I never saw a job, which allows doing a full time business and doing the Job Duties Part time or doing them never if you don’t feel like doing them.

    I am sure no Harvards and Whartons of the world talk about such Jobs or Businesses OR Maybe they Do, I am not an alumnus!

    India is a great place as there are plenty of such jobs, no qualificaiton requried too for these jobs. I think you guessed it right! The job is of a Politician and the business is to award contracts/Favours to Corporate and get the returns from those corporate, tax-free. No Capital, no Expertise, nothing required.

    A classic example is giving Reliance 4$ Plus for Supplying one Unit of Natural Gas, which costs less than 1$ to extract, 300% PROFIT – Do you recollect any company on the Planet earth with that kind of operating Margin – And, in return get a hefty pay back, directly stuffed in a bank outside India, who is Virtuous enough to respect your privacy. Isn’t this Win-Win, the basic tenet of Business, where both parties engaged should win!?!

    I believe we need inexperienced people in our Government – who are claimed to not know Governance – Like Kejriwal. The ones who do know are too convinced to do anything to break the nexus between the Government and some Celebrated Corporate Or are too busy running their Full Time business.

    It’s time we stop electing Such breed of businessmen and start electing Honest People who see Politics as a means to discharge General Welfare rather than make Personal Fortunes!

    Kick the Corrupt out – With Care – and elect good people. It’s only because of this new Genre of Politics showcased by Mr. Kejriwal and likes, that issues like CNG price hikes are getting some Footage; otherwise we’ll be just refueling our Vehicles with increased prices and counting the bucks remaining to the End of our Personal Budget!

  16. says: atush

    what little i know of KG basin is that the scam dates back to 1996-97.it is actually when KG basin was explored by ONGC or other PSU.when they found huge amounts of gas reserves.the companies officials n ministeries were bribed and the expected gas reserve was drastically reduced on paper.
    based on that report,the govt then gave this basin to reliance for extracting gas, as the indian PSU companies were unable to extract gas from that little reservoir.
    though i have no proof to prove what I say here,but any top insider at that time cud actually give u proof…!!this is what i heard from the lower staff working in the PSU,when i visited there.

  17. says: Ravi

    Dear Sir

    Thank you for writing this informative article.

    I’ve been waiting for your next article for sometime now.

    We understand you must be occupied with other things, but please try to keep posting such informative articles.

    Thank you.

  18. says: ML Verma

    March 21 issue of frontline also explore the Issue of KG Basin on the topic of Reliance factor but Opp : It could not be made election issue Kudo to AAP for taking Ambani and others on head on

  19. says: Narinder S .Grewalson

    The courage of Mr. Arvind Kejriwal, honesty, will to help the poor person on the road with no home or shelter just shanty living is that far great. I think the people of ” Land of Gods ” are too drenched in their localised , communal, religious superstitions that it might take years to awaken them for their rights to fight for to achieve and politicians have no moral or ethics principles. Let us hope for the best for The Great Nation of India. May God Bless them to fight OUT the ORRUPTION alone to make their life at ease and prosperous. Thank you. Good Luck.

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