Many would say Mukesh Ambani looks like a thief. And it turns out that he may indeed be one. The Krishna Godavari D6 Basin pricing seems to substantiate this.
Following set of letters by EAS Sarma (Please see below) by ex Energy Secretary indicates that there is sufficient prima facie evidence for Mukesh Ambani to be prosecuted. KG D6 scam comes across another mega scam where national resources are skimmed off.
It is pertinent to note that the upright EAS Sarma is Sambandhi to the redoubtable Dr Subramanian Swamy, someone who is fighting the scrouge of corruption & its con-joint twin sickularism.
Mukesh Ambani it looks like subsidises pernicious ideology of sickularism, that accentuates identity politics, perpetuates vote banks & obfuscates scrutiny/transparency, thereby directly enabling corruption, loot of national assets & tax-payer. Bharat earlier paid heavy costs for the Nagad Narayan mindset of its big businessmen; an Ahmedabad Hindu banker funded Aurangzeb to victory. The Radia tapes showed links of barkha dutt, ranjan bhattacharya, prannoy roy to reliance, people that nurture sickular subversion – totalitarian, imperial, predatory global beliefs backed by dogma and threats of coercive violence are good and nice while native Hinduism, an essentially decentralised faith, where experience is central, skepticism is integral, belief voluntary and text is subservient abused and smeared as intolerant. Not surprisingly, a reliance related entity took stakes in NDTV. Earlier, Reliance Lobbyist had cited that they need to support Prannoy.
Clout of these people could be noticed from what is seen by some as successful efforts to take out Sanjaya Baru from editorship of Business Standard, the magazine that reported EAS Sarma’s letters. Sanjaya Baru was someone with connections to PMO. Perhaps with the CAG report being released, Mukesh Ambani, Barkha Dutt types would have wanted to manage the media environment w/o Sanjaya Baru.
Letters below from Shri EAS Sarma highlight the oil scam. Can this nationalist with focus & commitment to truth stop the loot? Can the Chief Justice S H Kapadia and team defang the charlatans that have become a law in themselves? Or will the vested sickular lobbies – Apni Dukan – CON party, its , friends in high places in left – CPM, NDA – sections of Dilli BJP (Ranjan etc), JD(U) and the international network of influence – CFA etc bail ‘Mukesh and friends’ out? Does Narendrabhai have it in him to bell the sickular fat cats? Corrupt are a highly united lot and they have the resources to buy out those that are against them or do worse. India deserves nothing less than the complete defanging of the corrupt sickular lot.
Letter dated July 14, 2007
July 14, 2007
E. A. S. Sarma
Dr. Manmohan Singh
Dear Dr.Manmohan Singh,
The Chief Minister of Andhra Pradesh has rightly expressed his anguish at the way the Reliance Group of companies has been trying to dictate terms to the State Government in the matter of pricing natural gas from their offshore gas fields in Krishna Godavari basin.
The gas that is found onshore or offshore, whether it is by ONGC, Reliance or any other private company, is a natural resource that belongs to the people of this country. It is held in trust by the government on behalf of the people. The government is therefore not competent to dole out this precious resource to a private agency for making undue profit, under the guise of a production-sharing contract or any other means. The argument put forward by the Ministry of Petroleum recently that the Ministry has no role to play in the matter of pricing gas merely exposes the irresponsible manner in which the government has so far dealt with the induction of private players in the development of hydrocarbon resources of the country.
Anticipating the unethical moves of the private players, I had earlier written at least three letters, one to the then Petroleum Secretary on October 10, 2004, a second one to the Chief Minister of AP on May 4, 2006 and another letter to the Cabinet Secretary on December 19, 2006, cautioning them about the possible danger of Reliance and other companies exercising monopolistic power to fleece both the unsuspecting consumers and the respective State Governments. Despite these early warnings, the government has chosen to be a silent and passive spectator, allowing Reliance to have a free hand in pricing gas in whatever manner they wish to.
The world natural gas market is a highly fragmented one. Unlike in the case of crude oil and petroleum products, there is nothing that could be called the “market price” of gas at any given point of time. It is strange that Reliance should be allowed to devise its own method of “discovering” by calling for tenders in a highly restricted sellers’ market and directing the State Government to pay them on par with the highest bid price for the gas to be used in power generation and in transport and domestic sectors. These very same bidders for the gas are those that have entered into highly asymmetric Power Purchase Agreements with the State electricity utility and they would in turn merely pass on the full cost of gas purchases to the State utility. In other words, the State Government would face the double jeopardy of bearing the high cost of electricity generation from private IPPs who have deliberately bid a high price for Reliance gas and also paying on par with that high gas price for utilizing the gas for supplies to domestic and other users. In fact, the State Government finds itself in such an awkward situation entirely as a result of the indifference, insensitivity and incompetence displayed by the Central Government in dealing, first with the design of the production sharing contracts and, second with the drafting of the latest Petroleum & Natural Gas Regulatory Board Act of 2006!
I am not sure whether there is a grand design behind all this!
The Preamble of the above cited Act clearly refers to the need to “protect the interests of the consumers”. Section 11(a) of the Act reiterates this laudable concern. But, the Act itself is blissfully silent on the instrumentalities through which this concern would get addressed.
All the three consuming sectors, namely, power, transport and domestic sectors are such that it would be difficult for them to bear any undue cost burden, especially a cost burden arising from the rent-seeking opportunity handed over by the Central Government to private players. To permit the private gas producers in this country to charge a high rent on a natural resource defies all cannons of good economics. The Centre has done precious little to promote competition in the domestic gas market.
I would request the government to wake up to this reality at least now, amend the production contracts in public interest and ensure that the consuming sectors are not forced to pay anything more than the actual cost of development and an economically justifiable margin of profit, on the lines permitted by the regulators of electricity. The newly created Petroleum Regulator should be empowered to deal with the pricing of crude oil and natural gas in all its dimensions. There is also need to harmonise the petroleum and electricity regulation laws to bring sanity in the matter of pricing hydrocarbon fuels in tune with electricity price regulation.
I may mention here that the government’s response to this will be closely watched by the people at large. We had the unfortunate saga of Dhabol in Maharashtra. We do not want more Dhabols in the name of gas privatization!
(E. A. S. Sarma)
Letter dated July 13, 2009
July 13, 2009
Dr. Manmohan Singh
Dear Dr. Manmohan Singh,
Subject:- Pricing of Reliance Gas
I have enclosed below my last letter dated 30-6-09 on the subject for your ready reference.
I have come to know that the Reliance Group has already disclosed to the Director General of Hydrocarbons (DGH) the unit cost of production of natural gas from its fields in KG Basin to be around 80 to 90 cents per MMBTU. Such a disclosure is required under the terms of the Production Sharing Contract (PSC) entered into by the company with the government. I have separately requested the Director General of Hydrocarbons (DGH) to provide me accurate information on this under the provisions of the Right to Information Act, 2005. I have also requested the Cabinet Secretariat under the RTI Act to provide me the details of what had transpired at the meeting of the Group of Ministers (GOM) some time ago, when the GOM had recommended the price at $4.2 per MMBTU.
I presume that the Cabinet Secretariat that had processed the proposal of fixing the price of the KG Basin gas was in the know of the unit cost of production of the gas as available with DGH.
If the above information is correct, it raises several important issues regarding the intention underlying the decision of the government to fix the price of the gas at $4.2 per MMBTU.
Was it the intention of the government to permit the Reliance group to earn a return that is far in excess of what can be deemed to reasonable? On the total quantity of the gas expected to be produced and sold by the Reliance group from its KG Basin fields, a difference of $3.4 per MMBTU would imply billions of dollars of unearned profit for the company. Have the people of this country been informed about this?
As I had repeatedly been saying, the gas markets are highly fragmented and it is difficult to call any price a market driven one. The nearest one could get to this is the price offered by the Reliance group to NTPC in an internationally competitive bid format. The price on this basis worked out to $2.2 per MMBTU or so. I am sure that it is not the intention of the government to gag the voice of NTPC in this matter. If one were to adopt the price offered by Reliance to NTPC as the basis, the GOM-fixed price of $4.2 per MMBTU would still imply huge unearned profits for the company. The recent judgement of the Hon’ble Mumbai High Court corroborated this order of magnitude of the price.
Natural gas belongs to the people of this country and it is held in trust by the government and its statutory agencies. Its allocation and pricing should therefore be carried out in such a way that it serves the public interest. I am afraid that the government has not carried out the process of price fixation in a manner that is transparent to the public. The very fact that the government had earlier framed the Petroleum & Natural Gas Regulatory Board Act of 2006 and precluded the regulator from the function of fixing the price of gas casts doubts on its intentions. The manner in which the political executive had taken over this power and determined the price at $4.2 per MMBTU has only corroborated these doubts.
I request the government to review the price and the allocation priorities for natural gas in general and for the Reliance gas from the KG Basin in particular in a manner that is reasonably transparent to the public. Otherwise, some of us may have to seek judicial intervention in the public interest.
I am confident that you will intervene in the matter urgently.
I will appreciate a line in reply, acknowledging the receipt of this letter.
Former Secretary to GOI
Letter dated August 3, 2009
August 3, 2009
Dr. Manmohan Singh
Dear Dr. Manmohan Singh,
Subject: Pricing of Reliance Gas
This is in continuation of the series of letters I have addressed to you, the last one on 13-7-09. I am yet to receive an acknowledgement, leave alone a satisfactory response from the government on any of these letters!
I appreciate the hurried and somewhat belated attempt on the part of your government to declare that the natural gas resource found in the K.G. Basin is not the private property of the licensee and it is a resource held in trust by the government on behalf of the people of India. From what one learns from the news reports, the government has also filed an affidavit, though somewhat delayed, before the Hon’ble Supreme Court that it has the sovereign authority to determine the value and the priorities of allocation of natural gas. A family agreement that violates the sovereign authority of the government cannot survive. I hope the government will be able to argue these points emphatically before the Hon’ble Court.
While my RTI applications to Cabinet Secretariat and the Petroleum Ministry have so far drawn a blank, as I had already stated in my letter of July 13, 2009, RIL’s mandatory disclosure to DGH apparently shows the following:
i. Total capital expenditure estimated till end 2009-10: $4.8 billion
ii. Recoverable Reserves : 9.12 Trillion MMBTU
iii.Total “post well head” cost as indicated by RIL : $0.8945 per MMBTU
iv. Total “post well head” cost as per DGH’s
interpretation (only operation expenditure from
wellhead to delivery point to be included) : $0.2211 per MMBTU
(In these estimates, the interest on the cumulative expenditure on exploration & development has been capitalized, assuming an annual interest rate of 14%. A lower interest rate would have been more appropriate! The unit cost then would be lower)
I am not sure whether the GOM had the benefit of having this information before it, while it arrived at the price of $4.20 per MMBTU! While the government may be anxious to maximize its royalty income by hiking up the gas price, it should know that every extra dollar of royalty will simultaneously give away more than a dollar extra profitability to RIL! Both royalty and the profit will adversely impact the consumers of electricity, the users of fertilizer and the households that use gas for cooking. These are the three large consuming sectors for gas. Indirectly, since these are sectors that cannot bear high tariffs, the additional cost will have to be borne by the government through subsidies.
In Rajya Sabha question No. 336, the Petroleum Minister informed the Parliament on 27-7-2009 that Reliance expects to invest $8.8 Billion on its KG fields to obtain a peak production of 80 MMSCMD of gas. The Petroleum Minister further informed the House that this figure stands validated by “independent” experts. This implies that RIL is going to claim a quantity equivalent to this investment as “cost” gas to be sold by them as their own share, in addition to the “profit” gas share they will be entitled to, as per the terms of the Production Sharing Contract. If RIL were to claim its entitlement of gas against $8.8 Billion investment, how long will the government have to wait till they start getting their own share of gas from the profits?
While a family agreement among the members of the Reliance Group should not be allowed to override the role of the government in gas pricing and allocation, I believe that the government should allow NTPC to protect its own commercial interests based on RIL’s bid to NTPC, keeping in view the real cost of gas from the KG field and the need to provide electricity to the consumers at affordable prices.
I understand that RIL is going to earn additional profits to the tune of one dollar per MMBTU for transporting the gas through its own pipeline to different consuming centres in western and northern parts. I had earlier cautioned the government to preempt this by asking GAIL to have exclusive rights over gas transportation. GAIL should have been brought into the picture fully by allowing that company to lay out a national gas grid to permit healthy competition among the gas suppliers. Unfortunately, my letters have evoked little or no response from your government.
I am afraid that the government has brought itself into a messy situation by not heeding to sane and timely advice. I wish the government had anticipated this situation, as cautioned by me several times in the past, and framed the Petroleum & Natural Gas Regulatory Board Act of 2006 so as to empower the regulator to fix the gas price and the gas allocation priorities.
I hope the government, even at this stage, makes a public disclosure of all the financial and technical information on gas and allow a healthy debate to take place in the public interest.
Former Secretary to GOI
Letter dated August 9, 2009
Registered Post/ Acknowledgement Due
Important/ For Personal Attention
August 9, 2009
Shri Vinod Rai
Comptroller & Auditor General of India
Subject:- Special Audit of Implementation of Production Sharing Contracts with Oil & Gas Exploration and Development Licensees in Krishns Godavari Basin
Dear Shri Rai,
I understand that C&AG has taken up a special audit of the implementation of the Production Sharing Contract (PSC) between GOI & RIL for gas exploration and development in Krishna Godavari Basin. I wish to bring to your notice certain important aspects that will indirectly impact the finances of the government, unless due care is taken to address them.
At the outset, I wish to point out that, despite my repeated advice to the Prime Minister and the Ministry of Petroleum & Natural Gas (MOP&NG), the latter had deliberately framed the Petroleum & Natural Gas Regulatory Board Act of 2006 in such a manner that it would keep the petroleum regulator out of the domain of gas pricing. The stated rationale for this was that the price of gas would get “discovered” by the play of market forces, an assumption that had no basis whatsoever. Anyone familiar with the hydrocarbon industry would know that the gas markets the world over are highly fragmented and there is no alternative to adopting the “administered” pricing approach, based on the usual normative-cost-plus- reasonable-return approach. This has resulted in the present unfortunate situation, virtually bestowing upon RIL and the other players, a monopolistic hold over the pricing of gas. Strangely, the same government that believed in the efficacy of the market forces made a volte-face and proceeded to appoint the so-called Empowered Group of Ministers (EGOM) to bestow upon the political executive the responsibility of fixing the price of gas! In other words, the government, knowingly or unknowingly, first disabled the statutory functionary viz. the petroleum regulator and then enabled the political executive to tinker with the price, for reasons best known to them.
In this connection, I enclose a copy of my latest letter dated 3-8-2009 addressed to the PM. The letter is self explanatory. It is beyond reason as to how the EGOM had fixed the price of gas at $4.20/ MMBTU, when RIL had quoted $2.34/MMBTU in response to an international bid floated by NTPC. If the government had ever believed in a competitive market, they should have straightaway adopted NTPC’s price as the benchmark. Instead, they waited, for reasons best known to them, for RIL to adopt a highly contrived exercise to determine the gas price and then adopted it as the basis.
I am not sure whether your office has all the relevant documents in this case. I have asked for the relevant information under the RTI Act but, so far, I have drawn a blank. RIL however seems to have made a mandatory disclosure of its costs vide its communication dated 22-5-09 addressed to DGH. According to this, the unit cost of production is $0.8945/ MMBTU. If the norms laid down by DGH were to be applied to this, the unit cost would further come down to $0.2211/ MMBTU.
It is facile for the government to hide behind the smokescreen of protecting or maximising its royalty income, when every extra dollar of royalty for the government will simultaneously yield more than that extra dollar to RIL in net profitability. The burden of both the profit and the royalty, along with the cost, will finally impinge upon the consumers of fertilizers, electricity and cooking gas, all of whom will seek subsidies from the government. The whole exercise of the government seems to tax the consumers and the tax payers of the country, only to provide more than reasonable profits to RIL!
I understand that the committee of officials that advised the EGOM had recommended gas price to be fixed at a lower level. C&AG should perhaps obtain the relevant documents from the Cabinet Secretary. My own efforts to get the papers has so far met with resistance from the Cabinet Secretariat!
In para 102 of his latest Budget Speech, the Finance Minister has announced retrospective amendment of the Income Tax Act that will provide large benefits to the gas developers. Should the gas developers like RIL pass on this benefit to the consumers? The EGOM fixed price of $4.20/ MMBTU is a fixed one with perhaps some minor variation linked to crude price, whereas the tax benefit that will accrue to the developer is going to be fairly substantial.
In its communication dated 22-5-2009, RIL’s investment till the end of 2009-10 has been indicated at $4.8 billion, though in the reply to Parliament Question No.336, MOP&NG has curiously revised this figure upwards to $8.8 billion. RIL seems to have capitalized the interest on investment at 14% which, to me, appears quite high. The investment estimates provided by RIL therefore need to be scrutinized carefully.
Mustang Engineering Company, one of the so-called “independent” evaluators of the investment estimates provided by RIL is apparently not that independent, as the company has since been appointed as RIL’s contractor in Panna development project. I have attached here a news report of 2008 for your information. The conflict-of-interest angle needs to be looked into in the case of both the independent evaluators in the case of RIL.
I get the sense that the way the government have proceeded on some of these concerns has not been transparent and straightforward. DGH, under Section 4 of the RTI Act, should have disclosed all this information in the public domain but they have failed to do it. I am not sure whether MOP&NG has taken the Parliament into confidence fully.
While what I have said above referred to RIL, implementation of the other PSCs that MOP&NG has entered into need to be subject to careful scrutiny so as to ensure that the public interest is fully safeguarded. All these concerns have far reaching consequences and their implications for the state exchequer can be enormous.
MOP&NG has already started its preparations for launching NELP VIII auctions, without addressing the kind of concerns I have listed above. I enclose for your information a copy of my letter dated 8-8-2009 to Secretary (MOP&NG) on this subject.
I request C&AG to look into these aspects as they have a far reaching public interest angle.
Former Secretary to GOI
Letter dated August 12, 2009
August 12, 2009
Regd. Post/ Ack. Due
Dr. Manmohan Singh
Dear Dr. Manmohan Singh,
This is in continuation of my letter of August 3, 2009 on the concerns that have emerged on the pricing of natural gas from the fields licensed to RIL in the K.G. Basin. In view of the public interest implications, I wish to bring to your attention the additional concerns that have arisen.
I understand that the government has requested the Comptroller & Auditor General (CAG) to audit the financial aspects of implementation of the Production Sharing Contract (PSC) in the instant case. It is a step in the right direction, provided the Ministry of Petroleum & Natural Gas (MOP&NG) and the other government departments extend their full cooperation to the high office of CAG.
The Director General of Hydrocarbons (DGH) has issued a statement through his website to give the impression that the capital expenditure details reported to have been incurred by RIL have since been audited by CAG, whereas CAG’s clarification on 11-8-09 (reported in local edition of The Hindu of 12-8-09) contradicts this by saying that any claim that such capital expenditure has been audited by CAG would “not be true to facts”. This casts serious doubts on the credibility of the agencies acting on behalf of MOP&NG. Instead of making a public disclosure of the technical and financial information on all PSCs under Section 4 of the RTI Act, it looks as though MOP&NG is trying to obfuscate the real issues to the detriment of the public interest. I doubt whether MOP&NG has taken the Parliament into full confidence on such an important matter as this!
The case of NTPC in this RIL affair is important. NTPC should be allowed sufficient autonomy to safeguard its own commercial interests and the interests of its own consumers. Notwithstanding the statements made by the Minister in charge of MOP&NG, I hope that the government will desist from any attempt to gag NTPC’s voice.
Anticipating the hurdles in the way of full disclosure, I had written a letter to CAG on 9-8-09 with a view to help that office to get at the kind of documentation that is relevant. I enclose a copy of that letter for your information.
Articles 149 & 151 of the Constitution of India require the CAG to audit the accounts of the Union and the States and submit the audit reports to the Parliament. I hope that the Cabinet Secretariat and MOP&NG will submit all the relevant record to CAG to facilitate a proper and meaningful audit of this deal.
The issues involved in these PSCs, especially the PSC signed with RIL, are such that they will significantly impact the finances of the Central government and affect the interests of the tax-payers and the consumers of natural gas. Your office has therefore a special responsibility to ensure transparency and accountability in this matter and take such decisions that will subserve the public interest.
I am afraid that MOP&NG has not fully prepared itself for the new round of auctions in NELP VIII. I enclose a copy of my letter dated 8-8-09 addressed to Secretary, MOP&NG on this subject. If the Ministry goes ahead with NELP VII without addressing the kind of concerns raised by me, the government will, no doubt, get itself into a situation as sticky as in the instant case.
Former Secretary to GOI
Letter dated May 7, 2010
Dr Manmohan Singh
The Prime Minister
Dear Dr Manmohan Singh,
Subject: Natural Gas Pricing—Latest orders of the Hon’ble Supreme Court
I am happy that the Hon’ble Supreme Court has ruled unambiguously that the Production Sharing Contract (PSC) with private parties cannot override the inalienable right of the State and the people of the country to the natural gas resources that belong to them.
As reported in the press, it is significant that the Hon’ble Supreme Court has also made the following landmark observation.
“It is the duty of the Union to make sure that these resources are used for the benefit of the citizens of this country. Due to shortage of funds and technical knowhow, the government has privatised such activities through the mechanism provided under the production sharing contract. It would have been ideal for the Public Sector Undertakings (PSUs) to handle such projects exclusively.”
Against this background, I wish to impress upon the government that the Central government cannot, in the wake of the latest Court ruling, abandon its own obligation to exercise due diligence and prudence in fixing the price of gas, determine the sectoral and regional allocations and take all such measures necessary to prevent the supplier from exercising monopolistic leverage to the detriment of the public interest.
In this connection, I enclose here a copy of the detailed letter dated 22 August 2009 I had written to you on these very same issues that continued to be relevant even after the latest Court order.
The price fixed by the Empowered Group of Ministers (EGoM) is based on a contrived bidding format that was more beneficial to RIL than the public. The present arrangement of the EGoM administratively fixing theprice goes against all canons of competitive price fixation. The EGoM had, before it, the details of the price quoted by the supplier in a global competitive bid floated by NTPC. It was around $2.34 per million metric British thermal unit (mmBtu). Ignoring that price in favour of the priceobtained by RIL through a procedure that would fail to stand the test of good competition, the EGoM adopted a non-transparent process to accept the price indicated by RIL, raising questions of propriety.
When I requested both the ministry of petroleum and the Cabinet secretariat to provide me copies of the EGoM proceedings under the RTI Act, the government chose to cite “confidentiality” as an excuse and deny me the same. (Perhaps, the latest move on the part of the government to amend the RTI Act to preclude Cabinet proceedings from the public is a sequel to this, to keep such crucial decisions from public knowledge!)
I request the government to review the price fixed for the Krishna Godavari (KG) Basin natural gas in such a manner that the price is in the public interest. The mechanism of pricing should not be politicised. Instead, it should be entrusted to a statutory authority like the petroleum regulator, as already envisaged in the PSC itself. The government should also carry out an economic evaluation to arrive at the sectoral allocation priorities for natural gas, as suggested in my earlier letter.
I may mention in this connection that gas development is known to cause land subsidence. In the case of KG Basin gas, the ministry of environment had conveniently bypassed evaluating this aspect while according environment clearance to RIL. Some concerned citizens had to approach the Hon’ble Andhra Pradesh (AP) High Court to intervene and order a fresh environment appraisal of the project. The KG Basin comprises the heartland of agriculture of Andhra Pradesh and if there is land subsidence in that basin, it will break the backbone of the state’s economy. The state and the Central governments are oblivious, indifferent and perhaps insensitive to this impending calamity that is waiting to happen.
I hope that the government does not allow itself to be pressurised by the private company to overlook the public interest involved in KG Basin gas development.
Former Secretary to GoI
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