GAS WARS: CRONY CAPITALISM AND THE AMBANIS

by Paranjoy Guha Thakurta

  My parents have brought me up with the right values and I would never get involved in any wrong activity. After you questioned me and left, Reliance officials visited me. They asked me some questions but I didn’t tell them anything. One of them took my number and said they would talk to me again the next day. I got scared that I would be ‘used’. I wanted to inform you about the meeting, but when I visited the crime branch office last night, I saw a person being beaten up and that scared me and I came back.… Your investigation is proceeding in the right direction and the truth will come out soon.

  The police claimed that Borge had thrown himself in front of a local train heading towards Churchgate station. The gateman saw him crossing the tracks and being hit by the train. Borge died of shock and haemorrhage and was declared dead at Cooper’s Hospital. Two weeks after the incident, the police arrested Thevar and Warekar after interrogating sixty people. The investigators relied on the accounts of Borge and his colleague, who said that Warekar had been the last person on the chopper, and had been assisted by Thevar. The motive for the sabotage: an ongoing tussle between Air Works’ union and its management. Moreover, Warekar was named as a suspect in two of the four earlier cases of alleged sabotage at the company’s premises: two explosions using fireworks and petrol bombs between August 2008 and March 2009 for which no action was taken against him. It appeared to be an open-and-shut case.

  Sources close to Anil Ambani were, however, somewhat suspicious when speaking to journalists. First, they pointed to the contents of Borge’s ‘suicide’ note. Who were the Reliance officials who met him the day before he died? What did they ask him? What did he mean when he wrote that the police were on the right track? Did he know something that others didn’t? At the same time, they questioned the veracity of the note. One source claimed the note was ‘too clean’ and not crumpled. How many people carry a suicide note in their pockets, wondered another source close to Anil. The circumstances around Borge’s death were indeed puzzling.

  Sources close to Mukesh Ambani predictably denied any involvement in the mysterious episode. A Mukesh loyalist laughed when asked about the incident by a journalist. ‘Can you imagine any corporate captain stooping so low?’ The police too ruled out corporate rivalry, but more controversy lay in store for Mukesh, this time on account of a sensational blog entry dated 3 September 2009 on a website, www.exiledonline.com, run by an occasional Moscow-based journalist, Mark Ames.4

  Ames found links, albeit speculative, as he himself acknowledged, between the helicopter crash which, on the previous day, had resulted in the sudden death of former chief minister of Andhra Pradesh, Y.S. Rajasekhara Reddy, or YSR as he was popularly known, and the Ambani gas feud. This is what the blog claimed:

  Just over a month ago, as the Ambani brothers’ insane internecine war over offshore gas deposits dragged on with no end in sight, Reddy publicly demanded that his state, Andhra Pradesh, take a share of the gas deposits for itself. Even as the two Ambani brothers are locked in a legal battle over supply and price of gas from the Krishna-Godavari basin, the Andhra Pradesh government has sought its ‘due share’ of the hydrocarbon asset. He even attacked the brothers’ mother, who brokered the deal dividing up India’s gas between her feuding sons.

  Andhra Pradesh Chief Minister YSR had on 30 August 2009 said that the settlement of the gas dispute between the Ambani brothers could not be left to their mother Kokilaben and that the Centre must play a decisive role, for which he had written to the prime minister. ‘The dispute over sharing of gas is not an issue to be settled by (the) mother (Kokilaben). It is for the government to decide who should get the gas and at what price,’ Reddy said on the sidelines of a function. Ames claimed in his blog:

  Ah, Y.S.(R), you shouldn’ta attacked their mother. Next thing, you know … Reddy’s dead.

  Oh, and by the way don’t forget this one little funny fact: Larry Summers, the guy appointed by (Barack) Obama to run America’s economy, worked for Mukesh Ambani right up until he took his White House job. We’re in good hands, folks.

  Over four months after this incident and the posting of Ames’ blog, there was a furore after a television channel in Andhra Pradesh ran a story on it. Hear what happened thereafter in Ames’ own words, written in his blog-post on 8 January 2010:

  This has to be the single weirdest episode in my journalism career—and that’s saying a lot, considering all the strange and scary shit I’ve been through over the past decade plus. I caused a mass riot in India, leaving 185 people arrested so far, and about

  100 business(es) owned by Larry Summers’ oligarch friends smouldering in ruins…. A blog entry I posted a few months back on Larry Summers’ evil Indian billionaire sponsor, Mukesh Ambani, became a major television sensation in the southern Indian state of Andhra Pradesh yesterday, sparking mass riots against the oligarchs’ business interests. Mobs ‘went on a rampage in Guntur, Anantapur and Kurnool districts and Hyderabad city, where they attacked retail outlets and malls, cell phone towers and petrol stations operated by the two Reliance groups,’ according to one report. ‘They burnt effigies of Mukesh and Anil Ambani….

  Spokespersons of the Mukesh Ambani group expectedly denied all the allegations. They pointed out that a report by the Directorate- General of Civil Aviation had blamed pilot error for the chopper crash that killed YSR and that everything else was nothing other than pure speculation. And interestingly, some of the retail outlets targeted by mobs were those marketing products and services of Reliance Communications, which is part of Anil’s ADAG group.

  The conflict between the Ambani siblings had many other sensational dimensions. V.K. Sibal, a technocrat who formerly headed the directorate general of hydrocarbons (DGH), had charges of corruption levelled against him by the Central Bureau of Investigation (CBI). Sibal, who used to head the human resources division in the public sector Oil India Limited, was appointed to the coveted post of director general of the DGH in 2004, where he remained for five years. The DGH is a technical wing of the petroleum ministry; it decides which domestic or foreign companies are awarded contracts for exploration of oil and gas, and is also supposed to regulate their activities.

  Though Sibal faced allegations of favouritism soon after he took charge as DGH, it was only in October 2009 that his acts of omission and commission came under the spotlight. The Anil Ambani group moved the Supreme Court accusing Sibal of unduly favouring the older Ambani sibling’s company. On 6 October 2009, Sibal shocked many by writing to the home ministry a letter (that was leaked) claiming:

  ADAG [or the Anil Dhirubhai Ambani Group] is a corporate giant with unlimited resources. It is clear from the recent actions of this group that they are bent upon damaging my professional and personal life . . . in view of this I will not be surprised if ADAG resorts to violent means to achieve their objective. Therefore, I perceive a threat to my family members and myself.

  What Sibal essentially insinuated was that his life was in danger because of the then ongoing battle between the Ambani brothers over gas. ADAG retaliated by claiming before the Supreme Court that Sibal had not acted as an impartial regulator but had helped RIL ‘gold plate’ its capital investments for the KG-D6 basin. At the annual general meeting of RNRL’s shareholders, Anil said that RIL’s capital expenditure of Rs 45,000 crore was way above what it should have been. The reasoning was that RIL’s budget for peak production in the initial stages was Rs 12,000 crore, which could have increased to a maximum of Rs 20,000 crore after RIL doubled its production estimates. The DGH cleared the new investment figure, allegedly in a rush. The new capital budget was approved by a management committee comprising one junior official each from the petroleum ministry and the DGH and two RIL representatives.

  Why would RIL gold-plate its investments? This is what Sibal claimed on 4 August 2009:

  The idea of gold plating betrays a lack of knowledge of business economics. Inflating the expenditure does not benefit any stakeholder—neither the contractor nor the government. No company would
like to increase its investment unproductively. Every additional dollar of wasteful expenditure dents the profits of the contractor. The CAG (Comptroller and Auditor General) team has carried out the audit work … .A CAG audit has recently been completed.

  Sibal stated that a Goldman Sachs report on Global Finding and Development Costs 2008 stated that out of the 32 deepwater hydrocarbon projects developed in the world, KG-D6 ranked among the lowest in terms of costs and among the fastest in terms of time from discovery to production. He added:

  This project happens to be the first deepwater development project in India. It is pertinent to mention that the Dhirubhai gas discovery is the largest in the world in 2002. In any other country, it would have been hailed and cherished. However, we are content with squabbling over this outstanding success.

  Anil maintained that there was a purpose behind hiking capital expenses. The intention was to benefit RIL and lower the profits that accrued to the government. The calculation was intricate. The contract between RIL and the government allowed the former to recover the entire capital expenditure before the government received any meaningful revenues from its share of gas.5 Therefore, if RIL could overstate its expenditure, it could make consumers pay a higher price for the gas, reduce the government’s share of profits, and earn super- normal profits for the company.

  The CAG denied that it had cleared RIL’s increase in capital expenditure. It maintained that its work to audit the expenses had been stalled by several companies, including RIL, which had refused to give the CAG detailed information that it had sought. It was only after this disclosure that RIL, apparently with reluctance, agreed to another audit, but only as a one-time exercise.

  Simultaneously, Anil’s camp successfully established a nexus between Sibal and RIL. This was revealed in several articles, including those published in the Pioneer daily and Tehelka weekly. This investigation had been carried out by sources close to Anil and offered to various media organisations, many of which decided not to carry the information. Shantanu Guha Ray writing in Tehelka (3 October 2009) reported that RIL had ‘helped organize a stay in Mumbai’ for Sibal’s daughters, Priya and Sonia and ‘furnished a flat acquired by his (Sibal’s) daughter in Mumbai with white goods’.

  In 2005, both sisters had been residents at Dalal House, the VIP guest house of RIL, and the next year, Priya had stayed at another RIL facility, the Trivoli Guest House. The weekly magazine claimed to possess documents ‘that clearly explain how RIL acquired a small firm, Whitesnow Trading Private Limited, and used it as a front company to buy this flat for Priya’s use’. The article alleged that P.M.S. Prasad, who then headed RIL’s oil and gas division and L.V. Merchant, RIL’s chief financial controller ‘spent a good Rs 6.5 lakh towards furnishing and the installation of white goods in the flat’.

  V.K. Sibal gave a detailed response to these allegations to the Pioneer. In his defence he claimed that his daughter Priya had been living in Mumbai from 2001 and that in 2005, when the city got flooded after torrential rains, she could not be located for two days and ‘had to shift to an apartment located on higher grounds for a few days as a stop- gap emergency measure’. Sibal said his other daughter Sonia who was ‘studying in the Institute of Hotel Management, Aurangabad, during the period 2004–7 and was staying in a hostel’. He said that his daughter had paid an advance of ‘an amount of Rs 3 lakh and utility charges of Rs 3,000 per month’ for a flat in a different apartment complex.‘She stayed off and on with her friend in the same accommodation,’ Sibal claimed.

  The then DGH also sought to deny that he favoured RIL. He said a penalty of Rs 89 crore had been imposed on RIL for the October–November 2006 period for ‘unfinished work’. In a hurt tone, Sibal stated: ‘I do not understand as to why you should link purely official responsibilities with bona fide personal dealings. I am sure you can understand the hidden agenda of the people behind these allegations...’

  There may have been a ring of truth in V.K. Sibal’s assessment about being targeted by the Anil Ambani group, but this was hardly the first time that he had been accused of being partial towards RIL and Mukesh Ambani. In 2007, it had been alleged in media reports that he had a close personal relationship with RIL’s P.M.S. Prasad. At that time, Sibal had publicly clarified that he met Prasad in only his professional capacity as a regulator. What, however, seemed more serious was when Sibal argued that although the state-owned ONGC had emerged as the top contender for 20 blocks under NELP-VI, it should not be awarded the contracts for 12 of them on account of its ‘unsatisfactory’ track record. Instead, these 12 blocks should be handed over to the second-best bidder, in the event of foreign firms not showing any interest in them. If the DGH’s recommendations had been accepted, the greatest beneficiary would have been the Mukesh Ambani-controlled RIL.

  This did not happen. On 23 November 2006, at a meeting of the Empowered Committee of Secretaries (ECoS), headed by the then petroleum secretary, M.S. Srinivasan, and comprising representatives from the finance and law ministries, Sibal’s suggestions were rejected. This is how Outlook (11 December 2006) reported the controversy in an article written by the lead author of this book (Paranjoy Guha Thakurta) and Alam Srinivas:

  … ONGC screamed blue murder as soon as it learnt about Sibal’s suggestions. ONGC’s CMD [Chairman and Managing Director] R.S. Sharma met Srinivasan the day before the ECS meeting and complained about the discriminatory attitude of the DGH. Sharma pointed out that if ONGC’s past record on exploration was as pathetic as Sibal had made it out to be, why was the company allowed to participate in the bidding process in the first place?

  A senior bureaucrat says that if the DGH’s recommendations had been accepted by the ECoS, it ‘would have been tantamount to changing the rules of the game after the game had begun, which would have attracted the attention of not just the Comptroller and Auditor General of India but Parliament as well—it would have blown up in our face.’ Srinivasan obliquely hinted that Sibal’s contentions were untrue, and that ONGC was on the ‘verge’ of major discoveries in the near future. Sibal continued as DGH in 2007, but by 2009 the tide had turned. What had changed in these two years was that Sibal was slated to complete his tenure on 31 October 2009. As the petroleum ministry had recommended a two-year extension for him, it had to be cleared by the Central Vigilance Commission (CVC). Unfortunately for Sibal, the CVC’s initial investigations indicated that his alleged nexus with RIL needed to be explored further, and it asked the CBI to examine the case. Sibal cried foul. He described this as unfair as similar charges had been levelled against him in 2007 and the CVC had not concluded that probe. At that time, it was reported that the CVC had ‘failed’ to complete the investigation against Sibal within the stipulated time period. According to CVC guidelines, no complaint against a government officer is accepted in the six months prior to an extension of service or appointment ostensibly to ensure that allegations by disgruntled people are not given credence. Sibal, therefore, argued that the CVC should not have revisited the issue at a time when his extension was up for consideration, and that this was in violation of norms. However, the CVC told the government that there was a ‘trust deficit’ and there were sufficient reasons to doubt Sibal’s integrity and objectivity.

  On 28 October 2009, Sibal finally relented and requested voluntary retirement from service. On 2 July 2011, the CBI registered a criminal case against him and six of his former colleagues in the DGH for allegedly receiving kickbacks in the form of cash and ‘luxurious’ hospitality for favouring an American company, GX International, that had been awarded a contract for conducting speculative seismic surveys in areas with potential reserves of oil and gas for exploration. Sibal was reportedly questioned for several hours after CBI officials conducted raids on his premises as well as those of the other accused in Delhi, Mumbai, Noida, and Dehradun.

  A CBI spokesperson said ‘incriminating’ documents had been seized relating to immovable and movable properties belonging to the accused. Besides Sibal, other accused
included former chief geologist D.K. Rawat; the then adviser, geophysics, S. K. Jain; former accounts department head K.A. Murli; the then advisor, contracts, Anurit Sahi; former finance manager T.S.L.N. Reddy; the then chief chemist, Savendra Gupta; and the manager, exploration, GX International, Sujata Subramaniam.

  The CBI alleged that the DGH had awarded a contract to GX International in 2005 at an inflated price, thereby causing a loss of approximately Rs 400 crore to the exchequer. The US company had carried out seismic exploration and developed oil and gas fields. The contract was awarded on a ‘nomination basis’, a procedure resorted to when work has to be started on an urgent basis and which allowed the DGH to tweak its norms. The CBI was also reportedly investigating whether Sibal had attempted to scuttle a CVC inquiry into discrepancies in oil exploration and contracts executed by domestic and foreign firms by concealing documents.

  At least one important government official had become a victim in the battle between the Ambani brothers. Others too would get injured in the days ahead.

  3

  A 21ST-CENTURY MAHABHARATA

  It was a clique. For more than three decades after India became politically independent in 1947, barely a dozen families controlled most of the large privately-owned companies in India. Their members had enough friends among politicians and bureaucrats to ensure that policies were tailored to favour them. They manipulated the issuance of licences and quotas by the government in a centrally controlled economy.