Two days before the Aam Aadmi Party's Arvind Kejriwal resigned as chief minister of Delhi, the state's anti-corruption bureau filed a criminal case against Mukesh Ambani, the chairperson of Reliance Industries, India's second largest firm by net sales. The first information report also named Veerappa Moily, the petroleum minister, Murli Deora, a former petroleum minister, and VK Sibal, a former director general of hydrocarbons.
The FIR alleges that government officials and Reliance fixed the price of offshore gas drilled from the Krishna Godavari Basin in Andhra Pradesh at a level that will give the private company windfall gains at the cost of consumers and the public, according to sources.
Reliance and Moily have denied the allegations. "The complaint and each of the allegations on the basis of which the Delhi Government has taken such action are completely baseless and devoid of any merit or substance whatsoever," the company said in a statement. Moily told reporters, "I think I should sympathise with his (Kejirwal's) ignorance. He should know how the government functions, how these things are done." The party's critics have also called the FIR "frivolous."
The Aam Aadmi Party may have indeed calculated that it can reap political mileage in the forthcoming national elections by returning to its anti-corruption roots and reigniting public anger over crony capitalism. Instead of going to the public hobbled by controversies over its governance in Delhi, it can now position itself as a crusading party whose attempts at cleaning up the system have been stymied by a corporate-political nexus powerful enough to bring its government down within two days of vital disclosures.
Also, why file an FIR so close to relinquishing power in Delhi? Without the government pushing for an investigation into the FIR, it may go nowhere. So was filing the FIR just realpolitik concealed in high principles?
At the same time, the questions that the FIR raises do echo those that have been raised by several experts. Neither the critics nor their questions can be dismissed as easily as being frivolous.
Also, this is not the first time the Aam Aadmi Party is raising this issue. It first raised the KG basin gas pricing issue in November 2012, before it formed the government in Delhi, but the media did not cover it enthusiastically, partly out of a fear that Reliance would file defamation suits, which indeed followed.
By filing an FIR against India's biggest private-sector company, the Aam Aadmi Party has therefore at the very least ensured that an esoteric pricing controversy known only to a few has made it to the front page of newspapers across the country.
Is there evidence to back the allegations that the FIR makes? The Aam Aadmi Party says that its FIR is based on complaints it received from eminent citizens, including former cabinet secretary TSR Subramanium and former expenditure secretary EAS Sarma. Sarma, now based in Visakapatnam, told Scroll.in that he had written to Kejriwal about the issue.
The FIR states that the increase will cost the country Rs 54,000 crore every year, apart from having a cascading effect on the economy by raising the price of transport, electricity and domestic gas. Gas is used as fuel by both fertiliser and power companies.
To evaluate the FIR, one needs to go back to 1999, when the government invited private companies to explore large natural gas fields. In 2000, Reliance won the rights to explore gas in the basin of Krishna and Godavari rivers off the coast of Andhra Pradesh and entered a production-sharing contract with the government.
An expert committee set up by the government to suggest a policy for pricing gas had already earlier recommended that the price for natural gas be calculated on a cost-plus basis after exploration was over.
In Reliance's case, in 2004, the year it completed the first phase of exploration, it bid a price of $2.34 per mmBTU (million British Thermal Units), to supply gas from the KG Basin's Dhirubhai-6 (D6) block to the public-sector NTPC's two upcoming power plants. NTPC accepted the bid but Reliance then declined to sign the contract. NTPC took Reliance to court in 2005, and the case continues in the Bombay High Court.
Meanwhile, Reliance sought approval for a higher price of between $4.54 and $4.75 per mmBTU, and the government told an Empowered Group of Ministers to look into the matter. This group decided in September 2007 to fix the price at $4.2 per mmBTU.
But there was opposition to the price of $4.2 per mmBTU from within the government itself. KM Chandrashkhar, the then cabinet secretary, submitted a report to the EGoM, opposing the price, but it was ignored.
After a period of impasse, in April 2012, the government appointed a panel, helmed by C Rangarajan, the head of the prime minister's economic advisory council, to look in to the issue. The Rangarajan panel used a formula based not on cost but largely on import prices. In June 2013, based on this panel's recommendation, the government raised the price further to $8.4 per mmBTU, which comes into force on April 1, 2014.
This price increase is at the centre of the Aam Aadmi Party's police complaint. At the centre of this debate is the question of whether the price of gas should be fixed on the basis of cost of production, on the basis of cost of imports or a market-based method, such as the competitive bidding that NTPC followed but that fell by the wayside after Reliance took the matter to court.
The Aam Aadmi Party is not the first to raise questions about the price fixed by the government for the gas from KG Basin.
Independent researchers of Prayas, the Pune-based think-tank on energy issues, among other things, raised the fundamental issue of the lack of transparency in the production-sharing contracts between the government and private companies, none of which, they claimed, were in the public domain.
In an article published in Economic and Political Weekly in 2007, they wrote, "Given that the RIL gas find in the KG Basin is worth about Rs 2,50,000 crore over the life of the field, one can see that an extremely large amount of money is involved in the issue of how gas is priced under the PSCs. It would have been good if the committee had developed guidelines for competitive bidding as has been done in the power sector."
Other energy experts have questioned the price that the government has accepted to pay. Surya Sethi, who was principle advisor to the government on energy affairs at the time it fixed the price of gas at $4.2 mmBTU in 2007, was one. Again, last year he wrote an open letter to the prime minister protesting against the price again being doubled -- to $8.4.
"Sir, your Cabinet's decision will compound this largesse driven, yet again, by another indefensible formula that has no parallel, anywhere in the world…," he wrote. “The government and its 'experts' repeatedly cite high import dependence as justification for raising energy prices. India imports less than 28 per cent of her primary energy consumption. Import dependence remains below 37 per cent even if one only considers India's commercial energy consumption."
In an article in Economic and Political Weekly that appeared in July 2013, Sarma has also argued that the decision to double the price of gas was flawed.
Another prominent voice that has questioned the price hike is that of Gurudas Dasgupta, the veteran CPI MP, who has filed a petition in the Supreme Court challenging the Rangarajan committee’s gas-pricing formula.
The prime minister’s office, however, defended Rangaranjan’s formula. As reported in the Indian Express, it said, “A cost-based pricing of gas would be inconsistent with the new investment regime recommended for new production-sharing contracts by the committee. A cost-based regime also gives no incentives for effecting improvements in efficiency for cost-reduction.”
Columnist Swaminathan Aiyar this weekend wrote, in Sunday Times of India, in favour of moving to a regime that fixed the price of domestic gas using international benchmarks. He dismissed AAP’s FIR as "a silly conspiracy theory based on falsehoods," and he defended the price of $8.4 per mmBTU, arguing it was much lower than the price at which India imports gas, which he said ranged between $12-14.
"Keeping gas prices artificially low, well below import price, is disastrous for the Indian economy," he wrote. Echoing the government's argument, he said this was because there would not be enough incentive for private companies to explore and produce gas in India, which would leave the country dependent on steeply priced imports. Aiyar said Veerappa Moily had merely implemented a price fixed by an eminent six-member panel headed by C Rangarajan.
But another leading columnist, T N Ninan, has a different view. In a piece published in Business Standard in June 2013 soon after the price increase had been announced, he said, "It is also worth retelling that the head of Reliance's gas business had told this newspaper some three years ago, at the height of an earlier controversy over gas pricing, that Reliance would make a profit on its gas even at $2.34 per million metric British Thermal Units (mmBTU). The rupee was then nearer 47 to the dollar than 60 (so he was talking of a rupee price of about Rs 110, against the Rs 500 that has now been approved for next year). So does it stink? You bet!"
So while the Aam Aadmi Party might have its political compulsions in filing the FIR, the questions it raises echo an array of serious voices -- from those of respected editors to think tanks to bureaucrats.
The FIR alleges that government officials and Reliance fixed the price of offshore gas drilled from the Krishna Godavari Basin in Andhra Pradesh at a level that will give the private company windfall gains at the cost of consumers and the public, according to sources.
Reliance and Moily have denied the allegations. "The complaint and each of the allegations on the basis of which the Delhi Government has taken such action are completely baseless and devoid of any merit or substance whatsoever," the company said in a statement. Moily told reporters, "I think I should sympathise with his (Kejirwal's) ignorance. He should know how the government functions, how these things are done." The party's critics have also called the FIR "frivolous."
The Aam Aadmi Party may have indeed calculated that it can reap political mileage in the forthcoming national elections by returning to its anti-corruption roots and reigniting public anger over crony capitalism. Instead of going to the public hobbled by controversies over its governance in Delhi, it can now position itself as a crusading party whose attempts at cleaning up the system have been stymied by a corporate-political nexus powerful enough to bring its government down within two days of vital disclosures.
Also, why file an FIR so close to relinquishing power in Delhi? Without the government pushing for an investigation into the FIR, it may go nowhere. So was filing the FIR just realpolitik concealed in high principles?
At the same time, the questions that the FIR raises do echo those that have been raised by several experts. Neither the critics nor their questions can be dismissed as easily as being frivolous.
Also, this is not the first time the Aam Aadmi Party is raising this issue. It first raised the KG basin gas pricing issue in November 2012, before it formed the government in Delhi, but the media did not cover it enthusiastically, partly out of a fear that Reliance would file defamation suits, which indeed followed.
By filing an FIR against India's biggest private-sector company, the Aam Aadmi Party has therefore at the very least ensured that an esoteric pricing controversy known only to a few has made it to the front page of newspapers across the country.
Is there evidence to back the allegations that the FIR makes? The Aam Aadmi Party says that its FIR is based on complaints it received from eminent citizens, including former cabinet secretary TSR Subramanium and former expenditure secretary EAS Sarma. Sarma, now based in Visakapatnam, told Scroll.in that he had written to Kejriwal about the issue.
The FIR states that the increase will cost the country Rs 54,000 crore every year, apart from having a cascading effect on the economy by raising the price of transport, electricity and domestic gas. Gas is used as fuel by both fertiliser and power companies.
To evaluate the FIR, one needs to go back to 1999, when the government invited private companies to explore large natural gas fields. In 2000, Reliance won the rights to explore gas in the basin of Krishna and Godavari rivers off the coast of Andhra Pradesh and entered a production-sharing contract with the government.
An expert committee set up by the government to suggest a policy for pricing gas had already earlier recommended that the price for natural gas be calculated on a cost-plus basis after exploration was over.
In Reliance's case, in 2004, the year it completed the first phase of exploration, it bid a price of $2.34 per mmBTU (million British Thermal Units), to supply gas from the KG Basin's Dhirubhai-6 (D6) block to the public-sector NTPC's two upcoming power plants. NTPC accepted the bid but Reliance then declined to sign the contract. NTPC took Reliance to court in 2005, and the case continues in the Bombay High Court.
Meanwhile, Reliance sought approval for a higher price of between $4.54 and $4.75 per mmBTU, and the government told an Empowered Group of Ministers to look into the matter. This group decided in September 2007 to fix the price at $4.2 per mmBTU.
But there was opposition to the price of $4.2 per mmBTU from within the government itself. KM Chandrashkhar, the then cabinet secretary, submitted a report to the EGoM, opposing the price, but it was ignored.
After a period of impasse, in April 2012, the government appointed a panel, helmed by C Rangarajan, the head of the prime minister's economic advisory council, to look in to the issue. The Rangarajan panel used a formula based not on cost but largely on import prices. In June 2013, based on this panel's recommendation, the government raised the price further to $8.4 per mmBTU, which comes into force on April 1, 2014.
This price increase is at the centre of the Aam Aadmi Party's police complaint. At the centre of this debate is the question of whether the price of gas should be fixed on the basis of cost of production, on the basis of cost of imports or a market-based method, such as the competitive bidding that NTPC followed but that fell by the wayside after Reliance took the matter to court.
The Aam Aadmi Party is not the first to raise questions about the price fixed by the government for the gas from KG Basin.
Independent researchers of Prayas, the Pune-based think-tank on energy issues, among other things, raised the fundamental issue of the lack of transparency in the production-sharing contracts between the government and private companies, none of which, they claimed, were in the public domain.
In an article published in Economic and Political Weekly in 2007, they wrote, "Given that the RIL gas find in the KG Basin is worth about Rs 2,50,000 crore over the life of the field, one can see that an extremely large amount of money is involved in the issue of how gas is priced under the PSCs. It would have been good if the committee had developed guidelines for competitive bidding as has been done in the power sector."
Other energy experts have questioned the price that the government has accepted to pay. Surya Sethi, who was principle advisor to the government on energy affairs at the time it fixed the price of gas at $4.2 mmBTU in 2007, was one. Again, last year he wrote an open letter to the prime minister protesting against the price again being doubled -- to $8.4.
"Sir, your Cabinet's decision will compound this largesse driven, yet again, by another indefensible formula that has no parallel, anywhere in the world…," he wrote. “The government and its 'experts' repeatedly cite high import dependence as justification for raising energy prices. India imports less than 28 per cent of her primary energy consumption. Import dependence remains below 37 per cent even if one only considers India's commercial energy consumption."
In an article in Economic and Political Weekly that appeared in July 2013, Sarma has also argued that the decision to double the price of gas was flawed.
Another prominent voice that has questioned the price hike is that of Gurudas Dasgupta, the veteran CPI MP, who has filed a petition in the Supreme Court challenging the Rangarajan committee’s gas-pricing formula.
The prime minister’s office, however, defended Rangaranjan’s formula. As reported in the Indian Express, it said, “A cost-based pricing of gas would be inconsistent with the new investment regime recommended for new production-sharing contracts by the committee. A cost-based regime also gives no incentives for effecting improvements in efficiency for cost-reduction.”
Columnist Swaminathan Aiyar this weekend wrote, in Sunday Times of India, in favour of moving to a regime that fixed the price of domestic gas using international benchmarks. He dismissed AAP’s FIR as "a silly conspiracy theory based on falsehoods," and he defended the price of $8.4 per mmBTU, arguing it was much lower than the price at which India imports gas, which he said ranged between $12-14.
"Keeping gas prices artificially low, well below import price, is disastrous for the Indian economy," he wrote. Echoing the government's argument, he said this was because there would not be enough incentive for private companies to explore and produce gas in India, which would leave the country dependent on steeply priced imports. Aiyar said Veerappa Moily had merely implemented a price fixed by an eminent six-member panel headed by C Rangarajan.
But another leading columnist, T N Ninan, has a different view. In a piece published in Business Standard in June 2013 soon after the price increase had been announced, he said, "It is also worth retelling that the head of Reliance's gas business had told this newspaper some three years ago, at the height of an earlier controversy over gas pricing, that Reliance would make a profit on its gas even at $2.34 per million metric British Thermal Units (mmBTU). The rupee was then nearer 47 to the dollar than 60 (so he was talking of a rupee price of about Rs 110, against the Rs 500 that has now been approved for next year). So does it stink? You bet!"
So while the Aam Aadmi Party might have its political compulsions in filing the FIR, the questions it raises echo an array of serious voices -- from those of respected editors to think tanks to bureaucrats.
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