GAS WARS: CRONY CAPITALISM AND THE AMBANIS

by Paranjoy Guha Thakurta

  All that Raha could say was that the Union Budget’s provision had made it attractive to invest in gas pipelines. ‘I would welcome the decision,’ he said. ‘However,’ he continued, ‘if in the process the main beneficiary is RIL, that’s a different issue. We are concerned about gas which is national property.’

  He believed that the government should make investments in the exploration and extraction of gas more attractive by giving fiscal and other concessions. To quote him: ‘Doling out concessions to investors in an endeavour that is deemed to be a high-risk area is one part of the story. As to who derives the maximum benefit from such concessions—that’s an altogether different story.’

  Raha confirmed that this is not the first instance that the government has provided concessions for setting up infrastructure related to oil and gas exploration, production and transmission. Such provisions had been made in the 1998–99 budget presented by finance minister Yashwant Sinha. That was the only instance in the history of independent India when concessions were given in the Union Budget for commissioning of refineries. These concessions were given for a period of just six months instead of one year, which is the usual norm. The concessions were available for any refinery commissioned between April and October 1998—and once again, the same RIL was the sole beneficiary of the government’s decision.

  In the messy dispute relating to KG gas, it was often argued that since gas is a natural resource, it really belongs to all the people of this country and the government is expected to act as an impartial custodian of all national/natural resources. The question that logically arises is whether the government has been acting as a genuine custodian of the resources belonging to the people of India to ensure that the people’s interests are maximised or whether it is acting in a partisan manner to help particular private corporate groups?

  Raha responded by referring to his August 2009 article in the Economic Times where he had raised the question as to why the MoPNG was putting ONGC on the mat for securing a price of $5.50 for ‘new’ gas. The record indicated, he said, that the petroleum minister’s actions revealed an utter indifference to the interests of ONGC— which is largely owned by the government of India—because it was selling almost all the gas it produces at an APM (administered-price mechanism) price of less than $2.00 per mBtu. The other government company in this industry, OIL, also gets only a fraction of this APM price by selling gas that is produced in the northeastern part of the country.

  According to Raha, natural gas is not the only mineral that belongs to the nation. All minerals found in the country are sovereign properties.

  ‘Consider what happened in Russia, where the state has a sovereign right over all minerals in the country. During the regime of the first president of the Russian Federation, Boris Yeltsin, that is, between 1991 and 1999, a large number of state-owned companies, including oil and gas fields, were sold to private parties for ridiculously low prices, literally for the price of peanuts. Lukoil, the largest oil company in Russia, was sold for $1.2 billion whereas its actual value was somewhere in the range between $80 billion and $90 billion!’

  However, when Vladimir Putin succeeded Yeltsin in 2000, he imposed a freeze on further sales of state-owned companies. It took nearly two to three years for the Putin regime to evolve and enact a new law on the sovereign rights of minerals. It was only after the new law was enforced that Russia resumed the process of privatisation.

  As far as India is concerned, Raha pointed out that each minister in the government takes an oath of office when he is sworn in and part of that oath is that he will act in a way that is fair to all the people of India. It is, therefore, the duty of each minister to protect the sovereign rights of the country. A classic example of privatisation of mineral resources in India, he pointed out, was that of Bharat Aluminium Company Limited (BALCO), the public sector undertaking (PSU) engaged in the production of aluminium. Till 2001, BALCO used to be a PSU with 100 per cent of its shares owned with the government of India. That year, BALCO was privatised—the government sold off 51 per cent of the shares of the PSU to Sterlite Industries (India) Limited, which is now part of the Vedanta group headed by Anil Agarwal. In the process, the government privatised the biggest reserves of commercially available bauxite in the country without undertaking a proper independent valuation of the mineral resources that would accrue to the private company. There is no difference between bauxite and gas, or for that matter coal or dolomite, as far as their sovereignty is concerned, he emphasised.

  This is where the issue of the PSC crops up all over again. Raha said the responsibility for the controversy over KG gas rests squarely with the MoPNG. The ministry is the custodian of the NELP and the contracts that flow from the policy and if the ministry had truly abided by the NELP and the PSCs signed in letter and in spirit, legal disputes could easily have been avoided, he argued.

  What Raha suggested, though not in so many words, was that the problems over pricing and allocation of KG gas was created because the MoPNG and the government of India through the EGoM headed by Pranab Mukherjee, directly or indirectly sought to benefit one private party, in this case, RIL. The question then arises as to whether the government should not also have told RIL that it was up to the company to solve its problems with NTPC and also with RNRL and not involve the government in what are essentially private legal disputes. Who is indeed responsible for upholding the sanctity of contracts, the judiciary through the courts of law or the government?

  Raha said it was well-known that all government departments and ministries should act together. He went back to his Economic Timesarticle about the negotiations that had taken place between RasGas and Petronet LNG after there was a dispute relating to the price of liquefied natural gas (LNG). At a meeting in New Delhi, the deal was finalised in the presence of the concerned minister who represented the government of Qatar.3

  The deadlock was resolved on the basis of a proposal that Raha had made as the then executive head of ONGC to fix the price of LNG at $2.53 per unit for the first five years. RasGas complied with the contract and shipped cargoes of LNG on schedule, even though world prices of gas had by then zoomed to double digit levels. The fact was simple: for five years RasGas stuck to the contracted price of $2.53 per unit at a time when world gas prices had risen beyond$15 per unit. So the Qatar company stuck to the terms of the contract although it could have earned more by reneging on it and selling gas in other markets. For Raha that was the essence of a contract—and that was the root cause of the controversies that were generated over the pricing and allocation of natural gas extracted from the Krishna- Godavari basin by RIL. In his mind, he was as clear as clear could be. Still, he wanted to see the exact statements that would be attributed to him in this book. That was not to be.

  To conclude this chapter, here is a brief personal account from the lead author of the book. After the interview with Raha, the large number of tapes we had accumulated had to be transcribed. Transcribing tapes is a tiresome, tedious and time-consuming process. A former colleague Ayaskant Das was on the job. The full transcript of the interview exceeded 11,000 words. The text then had to be edited for grammatical errors and for the sake of greater clarity. On 30 December 2009, I wrote the following e-mail:

  Dear Subir-babu, (as one Bengali would address his senior)

  I hope this email will find you in good spirits. Here’s wishing you all the very best for 2010.

  I know I have taken much longer than I should have transcribing the recorded interview I did with you at your residence more than three months ago (to be precise, on September 17). The full text runs into nearly 12,000 words. I have tried my level best to be faithful to what you said. The changes that have been made are basically to improve style and avoid redundancies. Nevertheless, you should feel free to add, delete and change what has been written….

  I added that I would wait for the final approved text from him. I concluded: ‘Despite the inordinately long time I have taken getting back to you, I would apprec
iate an early response. And do let me know when I could come and visit you again. Best wishes…’

  One did not hear from him for a few days. I waited patiently. Something in my head kept telling me that he was fighting a losing battle against his illness but I kept my thoughts to myself, sharing them only with Das. I sent him a few messages on his mobile phone. He then gave me a day and time to meet him and then, cancelled the appointment on the ground that he had to suddenly visit his doctor. He gave me another appointment, this time in his hospital room. But again, a day before the appointment, he sent me a message calling off the meeting because of a ‘medical emergency’. My worst apprehensions seemed to be getting confirmed. On 12 January 2010, in the afternoon, I suddenly received an email from him:

  ‘Dear Paranjoy,

  As you see, I did begin correction/revision. Achieving technical accuracy for the layman is always tougher….I have no intention to spend the next few weeks only on this labour, that too under the threat of daily reminders—please pardon my bluntness….What I could do is to re-brief you over one or two sessions subject to the uncertainties of my health condition, and then jointly, go through your final version. If this is acceptable, please let me know….

  Let’s stay friends!

  Subir’

  His e-mail to me ended with a quote from the well-known American television hostess Oprah Winfrey: ‘Every day brings a chance for you to draw in a breath, kick off your shoes and dance’.

  I never realised then the irony of that quote. I was upset that he felt I was ‘threatening’ him and wrote back saying I was hurt by his suggestion. I merely wanted the work to proceed expeditiously, I said, adding that I would wait to hear from him before getting in touch with him again. I suggested that I would be willing to assist him put down his memoirs should he want to. I concluded by writing: ‘And I mean it when I say I wish you speedy recovery.’

  He responded promptly using his mobile phone:

  ‘Dear Paranjoy,

  Sorry that you felt hurt. But your response was soothing. That’s what friends are for, isn’t it? I’ll revert tomorrow night after medical review. By then, you could see the revision and let me know if that’s good enough.

  Feel free to call me by my first name even if I’m older than you!

  Take care,

  Subir’

  He attached the last article he wrote with his email. The article was titled ‘Tarnished Silver’ and in it, he sharply criticised the government’s policy of divesting its shares in public sector undertakings at what he felt were low prices. He likened divestment to ‘selling the family silver’ and acknowledged that while the silver was indeed ‘tarnished’, it should not be sold at rates at which ‘white metal’ was sold. He complained that two newspapers had rejected his article while another was sitting on it. On 18 January 2010, the Hindustan Times newspaper published an edited version of what he wrote. He never got back to me with his revisions to the transcript of his last interview. I never got around to learning more about his life and the many corporate and political battles he reportedly fought. On 1 February as I was travelling to Jaipur from Delhi, Das called me to inform me that Subir Raha had passed away.

  8

  A GAS POLICY OF HOT AIR

  The best person to tell the inside story of the Krishna-Godavari gas wars would arguably be the Union minister for petroleum and natural gas. The man to hold this portfolio in the Union Cabinet when the scuffle between the Ambani brothers broke out was diplomat-turned- politician Mani Shankar Aiyar. Between May 2004 and January 2006, Aiyar held this position (during which time he was also minister for panchayati raj).

  After Murli Deora replaced him, Aiyar was given the ministerial portfolios of youth affairs and sports as well as development of the north-eastern region. At that time, there was considerable speculation about the real reasons why Aiyar was shunted out. Deora was perceived to belong to a pro-US lobby in the ruling Congress party, whereas Aiyar was in the so-called left wing of the party. Moreover, Aiyar was not exactly on the best of terms with the undivided Ambani family, unlike his successor in Shastri Bhavan (headquarters of the petroleum ministry) who was an old friend of the founder of the Reliance group, Dhirubhai Ambani.

  The Cabinet reshuffle in which Aiyar was replaced by Deora came amid speculation that the UPA government led by Manmohan Singh was having second thoughts about the ambitious Iran-Pakistan-India gas pipeline project after voting against Iran in the International Atomic Energy Agency (IAEA). Whereas Deora had been invited for breakfast at the White House by the then American President George

  W. Bush Jr., the outspoken Aiyar was perceived by many as being over-zealous in trying to put together a gas grid that would not just involve India, Pakistan and Iran, the arch political opponent of the US at that time, but also Russia and the Central Asian republics of the former Soviet Union. At least one senior journalist did not mince words while observing that Aiyar may have been moved because a side-effect of the long-term energy security plan he was attempting to implement for India may result in a shift in the global balance of power away from the United States.

  Columnist Prem Shankar Jha wrote in Outlook (13 February 2006):

  The long awaited Cabinet reshuffle could have been dismissed as an exercise in coalition housekeeping and rewarding of the faithful, had it not been for one significant change of portfolio. This was the removal of Mani Shankar Aiyar from the Petroleum Ministry and the appointment of fund-raising party loyalist Murli Deora to this immensely sensitive post. Twenty months ago, when Aiyar was asked to take this portfolio besides panchayati raj (with which he has a father-son relationship since he drafted the relevant constitutional amendment bill for the late PM Rajiv Gandhi), his objections were brushed aside on the grounds that he was one minister on whose integrity the party could place complete faith.

  Jha went on to extol Aiyar’s virtues. According to Jha, Aiyar had an instinctive understanding of the geopolitics of oil, a capacity to plan years ahead in a shrinking and incredibly competitive oil market, a decisiveness in action quite alien to Indian politics and a demonstrable track record for honesty. So, why was Aiyar moved? One answer could be that this accumulation of virtues broke the iron law of mediocrity that governs Indian politics. His successor, Murli Deora, fit the bill perfectly. ‘But there is another possibility whose mere contemplation fills me with shame,’ continued Jha.

  Aiyar was not only determined to push ahead with the Iran- Pakistan-India gas pipeline, to which the US had voiced strong objections on the ground that it would impede its efforts to isolate Iran, but he was also actively putting in place an Asian gas grid that would link India with Iran, Turkmenistan, Kazakhstan, China and Myanmar. In addition, Aiyar had infused new vigour into India’s efforts to acquire shares in oil fields abroad and, most troubling to the US, had signed an agreement with China that would enable the state-owned oil companies of the two countries to bid jointly for companies, concessions and oil fields in other countries in the future. In Jha’s opinion, had these plans matured unhindered, it would have cemented a relationship between the two biggest oil consumers of the near future and the most important producers of oil and gas outside West Asia. The entire Asian region, from Russia up to China and Sri Lanka, would have gained a level of economic self-sufficiency that would have been translated by degrees into greater political autonomy. With the American, North Sea and West Asian oil reserves having begun to dwindle, this would have culminated in a loss of control of this vital market that would have knocked out the underpinnings of the US and EU global political dominance. This could hardly have been what Aiyar had in mind, but with characteristic panache, he had managed to rock some very big boats in a very short time.

  ‘I would have been reluctant to give any credence to this theory had I not heard, barely hours before the Cabinet reshuffle was announced, that Aiyar was almost certainly being deprived of the Petroleum Ministry,’ wrote Jha.

  While no one doubted his brilliance or probity, he had been
taking decisions that had ‘foreign policy implications’ without the clearance of the appropriate authorities. The source of this ‘explanation’, Jha was told, was the PMO. Since two officials directly concerned with reconciling oil and foreign policy told Jha that the allegation was untrue, he concluded that it was a red herring designed to distract attention from the true reason behind the decision. The driving factor for removing Aiyar, he believed, was ‘our’ overpowering desire to fall in line with American policies—a desire that intensified after the 18 July 2008 nuclear deal between India and the US and ratcheted into an obsession by the time President George Bush visited India. Jha became even more suspicious when ‘one of the first things’ Deora announced after being sworn in was that there were many inherent difficulties with the Iran-India gas pipeline project. Jha was cognisant of the fact that suspicions do not amount to certainty. It was possible that the unnamed PMO official was ‘flying solo’, and that Aiyar asked to be relieved of the oil portfolio in order to concentrate on panchayati raj and sports. But in politics, perception is often reality.

  It doesn’t matter what Manmohan Singh or Sonia Gandhi had in mind. All that matters is how Iran, China and Pakistan, not to mention Russia, are going to interpret the portfolio change. On that, no one should harbour any doubts. The only conclusion they can come to is the one I have outlined above….