GAS WARS: CRONY CAPITALISM AND THE AMBANIS

by Paranjoy Guha Thakurta

  the issue was referred to the attorney general of India for his advice, he came back saying that ‘it was a matter of policy and not law’ and that the April 2014 deadline for gas price revision was still valid. The official quoted argued that minister Jaipal Reddy resisted the move to increase the price of gas as it would lead to a ‘loss of $6.3 billion to the exchequer and put a huge burden on the common man, the farmers and the fertilizer industry in the shape of a sharp hike in the price of power and fertilizers’. That was not all. Jaipal Reddy brought RIL ‘under the scrutiny of the Comptroller and Auditor General’ in the face of the company’s insistence that it was a private corporate entity and that its accounts could not be scrutinised by the government auditor. The petroleum ministry led by Jaipal Reddy, however, maintained that it could seek a ‘second audit’ of the company under ‘section 1.9 of the production sharing contract’. The ministry told RIL that if they refused to submit to CAG scrutiny, they could face non-approval of their investment plans for field development of satellite oil and gas fields in the KG basin. and perhaps a minister who can lay claim to intellectual, as well as financial honesty,’ Bhavdeep Kang wrote in an article for Governance Now (3 November 2013) after the exit of the minister.

  Jaipal Reddy reportedly steered clear of coterie politics in the Congress when he was spokesperson of the party for five years. He was awarded Best Parliamentarian in 1998, a year before he rejoined the Congress when he was welcomed by Sonia Gandhi and commended for his commitment to secularism. He had earlier been with the Janata Party, having quit the Congress when the Emergency was declared by Indira Gandhi in June 1975. Jaipal Reddy was to be a key player in various formations of the Janata Party till the break-up of the United Front government after the then prime minister Inder Kumar Gujral lost power in 1998. He had first joined the Congress in the 1960s as president of the student’s union of Osmania University, Hyderabad. He went on to head the Youth Congress and was elected to the Andhra Pradesh legislative assembly in 1969.

  On Monday 29 October 2012, as crowds of journalists and well-wishers had started gathering at Jaipal Reddy’s residence from early in the morning, (among them the lead author of this book), it was a less confident man who met his visitors. The sprawling bungalow in Lutyen’s Delhi located just opposite Birla House (where the ‘father of the Indian nation’ Mohandas Karamchand Gandhi had been assassinated on 30 January 1948—hence the name ‘Tees January Marg’, meaning Thirtieth January Road), was teeming with people. Jaipal Reddy met everybody, but said little. There was widespread comment in the media that Monday that Jaipal Reddy was ‘unhappy’ with his new post. He was personally not present at Shastri Bhavan to hand over charge of the ministry to his successor Marpadi Veerappa Moily and the formalities had to be handled by junior minister R.P.N. Singh who had himself been moved as minister of state to the ministry of home affairs. Once he assumed charge as minister of science and technology, Reddy’s old team in the petroleum ministry would be disbanded. Moily himself came to Jaipal Reddy’s residence to ‘seek his blessings’. The new petroleum minister presumably knew what he would have to contend with. In one of his last acts as petroleum minister, Jaipal Reddy had prepared a note for the EGoM citing his concerns about the different demands that had been made by Reliance. The note dated 10 October 2012 ran into 138 pages, including 117 pages of supporting documents. Paragraph 3.12 laid down what the financial implications for the government would be if RIL’s request for a hike in the administered price of gas to $14 per mBtu was accepted:

  Financial Implication: RIL has proposed linking of gas price to international crude price. RIL has proposed the formula presented in the case of CMB (coal-bed methane) gas, according to which gas price will be ranging between $14.20 to 14.51/mBtu. In brief, $10/mBtu increase in gas price will result in $8.5 billion increase in revenue to the contractor in the next two years in case the production remains constant at 37.5 mscmd. The difference in revenue to the contractor will be an addition of approx(imately) $4.1 billion and to the government $0.5 billion in case the gas production from this block is taken as per the projection made by the contractor. In the second case (if) the production is assumed to be 25 mscmd in 2012-13 and 18.7 mscmd in 2013-14, as most of the gas produced is being used by fertiliser units and power units (to) supply power to state discoms (or electricity distribution companies), the burden on state and central governments will go up by around $10.5 billions [sic] due to increase of $10.0 in domestic gas price...In the scenario of falling production, the increase in subsidy burden is likely to be $6.3 billion.

  One view that was expressed in a section of the media is that after he became petroleum minister, Jaipal Reddy took the so-called ‘clean-up directive’ from the Congress high-command a bit too literally and acted a bit too diligently questioning every decision that could be perceived to have been against the nation’s interest. ‘Coming after Murli Deora, who was charged with being an agent of Reliance, perhaps Jaipal was very cautious. He was going by the rule book, interpreting things more in favour of the government and not Reliance. The same attitude he carried over to other cases, whether it was BP or Cairn Energy,’ S.C. Tripathi, former petroleum secretary told Lola Nayar in Outlook (12 November 2012), adding that this extra-cautious approach ‘hurt the petroleum sector as even normal decisions were kept pending’

  However, Jaipal Reddy’s supporters think otherwise. They claim that as petroleum minister, he had sought to encourage investments while safeguarding the interests of the national exchequer even though he was under tremendous pressure from business tycoons such as Anil Agarwal, who heads the Vedanta group. Take the case of the Barmer gas blocks in Rajasthan where Vedanta group company Cairn India and the government-controlled national oil exploration company ONGC had teamed up to develop the gas finds. Jaipal’s hand-picked team within the ministry and the DGH ensured that ONGC’s burden of royalty and cess payment was restricted to its 30 per cent share—they had to pay 100 per cent previously—which meant a saving between Rs 3,000 crore and Rs 4,000 crore for the government through the public sector ONGC.

  However, Jaipal Reddy seems to have thought through his actions and went about them carefully and methodically. As Nayar wrote in Outlook, he had to be ‘more careful than normal’ and thus would leave some key decisions to the EGoM, the inter-ministerial groups or the Cabinet. As the lead author of this book, who was quoted in the Outlook article, said, ‘Pressure could come, and did come, from familiar quarters.’ A senior petroleum ministry official had told him on condition of anonymity that when he apprised the top brass of the finance ministry of the estimated $6.3 billion loss to the exchequer if RIL’s demand for a $14 per mBtu gas price was accepted, the reply he received was a curt: ‘Is it your concern or mine?’

  Soon after becoming petroleum minister, Veerappa Moily promised to speed up decision-making. He had been the country’s law minister when the Ambani brothers had been fighting it out in the Supreme Court over control of gas from the KG basin. Before his new appointment Moily was power minister. He surely knew what was going on. He was certainly not unaware of the consequences of aligning domestic energy prices with world prices or the impact of a hike in the price of gas on the power sector. The message was loud and clear. Just as Mani Shankar Aiyar had been moved from the post of petroleum minister in 2006 and replaced by Murli Deora till the 2009 elections were over, Moily would be in charge of the petroleum ministry till the 16th general elections scheduled for April-May 2014.

  The loquacious Moily, who is from Karnataka, was leader of the opposition in the state between 1983 and 1985 and chief minister between 1992 and 1994. An advocate by training, Moily was a lawyer during the 1960s in Karakala, a temple town in Karnataka, from where he was elected to the state legislative assembly in 1972. He became a member of parliament from Chikkabalapura constituency in the state in 2009. Moily is also a part-time writer, a poet and playwright. He has written a novel in Kannada and a four-volume publication in English, titled Unleashing India, which out
lines how the country can become a superpower by leveraging its demographic dividend. He is considered to be a most loyal supporter of party president and UPA chairperson Sonia Gandhi.

  Jaipal Reddy’s removal from the post of petroleum minister and his replacement by Moily was much commented upon. The Left saw in his removal the hand of powerful corporate interests, meaning Reliance. On 1 November 2012, Sitaram Yechury, MP of the CPI(M) said the Cabinet reshuffle had completed a process of placing pro-corporate ministers in key economic ministries to aid the ‘neo-liberal policies that the Prime Minister is bent upon pursuing’. The CPI(M) leader said that Reddy’s ouster had exposed the ‘tentacles of big business in the appointment of ministers’. The following day, Gurudas Dasgupta, CPI MP, wrote to the prime minister asking that a fresh notice be served on RIL to restrict cost recovery by the company for the shortfall in gas production from the KG-D6 block. Here are excerpts from Dasgupta’s letter:

  You are aware that Mr Reddy imposed a fine of $1 billion on RIL to restrict cost recovery due to shortfall in production in 2011-12. If we consider the current year’s shortfall, the implication is even more startling. Against the cumulative production target of 2.957 trillion cubic feet (tcf) to be achieved by the end of the current year, RIL has said it will produce only 1.847 tcf of gas. By the same logic that was applied to last year’s shortfall, the government should give a fresh notice to RIL, restricting cost recovery by $1.72 billion in the current year corresponding to a cumulative shortfall of 38 per cent. For the years 2013-14, based on RIL’s own projections and the government-approved principle of proportionate restriction of cost recovery, there should be a notice to restrict cost by $2.1 billion. Will the government have the gumption to impose these huge fines after changing an honest minister like Mr Reddy? Does not the giant monopoly company, which violates (a) contract with impunity, attract criminal liability and will the government not act against it? Does this anti-national act of RIL have any bearing on the recent reshuffle?

  They (meaning RIL) have deliberately reduced production from 80 mscmd to 27 mscmd in the current year and have threatened to reduce it further by 18 mscmd next year. The fallout of this is that we are losing power to an extent of 12,000 MW. Next year the shortfall will be to the order of 13,500 MW. If we could substitute this with costly imported gas, the extra subsidy burden on fertilizer and power in the current year would be Rs 40,000 crore. This figure was Rs 20,000 crore in the year 2010-11. Next year, with an anticipated shortfall of 62 mscmd, this will translate to a loss of Rs 48,000 crore. Thus the loss to the country in the three years due to shortfall in production would be a whopping Rs 1,10,000 crore.

  Gurudas Dasgupta was not alone. M. Venkaiah Naidu of the right-wing nationalist Bharatiya Janata Party (BJP) also issued a statement saying the Cabinet reshuffle had been done under pressure from ‘a corporate group’ (without naming Reliance) and that Jaipal Reddy was an ‘example of that’. Within the media, not everyone was supportive of the former petroleum minister, some even suggesting that what happened to him was not surprising. For instance, Mail Today carried the following blurb next to Jaipal Reddy’s photograph: ‘In the last two years, his portfolio was changed twice. Is considered rigid on many issues of governance. Not having a pro-reform image has also gone against him.’

  But the issue of the change in ministerial portfolio was highlighted by the newly-formed political outfit set up by, among others, activists Arvind Kejriwal and Prashant Bhushan, the Aam Aadmi Party. A media conference was called on 31 October 2012 in which Kejriwal openly alleged that it seemed it was not prime minister Manmohan Singh who was running the country but India’s richest man, Mukesh Ambani.

  Kejriwal and Bhushan began their media conference by playing two excerpts from the infamous Nira Radia tapes. One excerpt dated 22 May 2009 had corporate lobbyist Radia (among whose clients was Reliance) conversing with Ranjan Bhattacharya, former prime minister Atal Bihari Vajpayee’s foster son-in-law, about Mukesh Ambani. Here is how the conversation went:

  Ranjan Bhattacharya (RB): So, is Mukesh happy with ...?

  Nira Radia (NR): Very happy

  RB: [Laughs] You know what he told me

  NR: What?

  RB: He tells me, he says, you know, he is in his usual style, kya kyon, I told him ‘Mera chhodo, kya kyon, aapko kya hai (forget me and all this, what about you)?

  NR: Hmm.

  RB: He says, Sir, theek hai (it’s all right). I said, Mukesh, once in a while show some bloody emotion. Aapka to sab kaam ho gaya (all your work has been done).

  NR: Hmm.

  RB: Motu nahin aaya, yeh nahin hua (The plump person—which could also mean older brother in Gujarati—didn’t make it). He replied, ‘Haan yaar, you know Ranjan, you’re right, ab to Congress apni dukaan hai (now the Congress is our own shop).’

  Having opened the media conference in this manner in New Delhi’s Constitution Club before a battery of television cameras linked to outdoor broadcast vans airing the proceedings live, Kejriwal and Bhushan described the government’s deal with Reliance on natural gas from the KG basin as a ‘classic case of crony capitalism’. They alleged that the company was ‘blackmailing’ the government to increase gas prices by ‘almost stopping’ gas production and ‘hoarding like petty traders’ so that consumers would be forced to ‘buy gas from abroad’. They compared this episode to the coal block allotment scandal, before providing their version of a blow-by-blow account of the gas deal.

  They alleged that both the Congress and the BJP were in Mukesh Ambani’s ‘pocket’. It was the NDA government led by the BJP that had in 2000 signed the PSC with RIL. ‘This was a sweetheart agreement which the BJP gave to Reliance on strange conditions which says that when the production cost increases, the profit also increases for the company,’ Kejriwal claimed. The press note issued on the occasion sought to explain the claim using the argument that had earlier been made by the CAG:

  In any business, increase in costs means decrease in profits. However, the NDA government signed a contract dictated by RIL wherein an increase in cost by one rupee meant additional profits of RIL by almost Rs 2.2. Isn’t it strange? A parameter called Investment Multiple has been defined in the contract as under: Investment Multiple (IM) = Total Revenue/Total Investment.

  According to the contract, till (the) IM is below 1.5, RIL takes away more than 80 per cent of profits and government gets less than 20 per cent of profits. It is only when IM becomes more than 2.5 that government gets 85 per cent. This means, RIL has a huge incentive to keep IM below 1.5 by increasing the expenditure artificially. Thus if Reliance were to increase expenditure from (Rs) 1 billion to (Rs) 2 billion on a revenue of (Rs) 5 billion, their own net income would go up from (Rs) 1.6 billion to (Rs) 3.5 billion. This is what the CAG has stated in para 8.1 of its Performance Audit of Hydrocarbon PSCs.

  Kejriwal and Bhushan argued that the jump in investment estimates from the level indicated in the initial development plan in 2004 (for producing 40 mscmd of gas) to the revised addendum (for producing 80 mscmd of gas) two years later—$2.39 billion to $8.8 billion—was simply too high. ‘Doesn’t that sound strange? To double production, you increase your investment by four times? Having put the initial infrastructure in place, it should have cost lesser to create additional production capacity,’ they contended.

  They slammed the prime minister for his apparent ‘sympathy’ for RIL. After requests for a hike in gas prices were turned down several times by the petroleum ministry under Jaipal Reddy—Mukesh Ambani is said to have met minister Reddy at least six times—RIL ‘approached the PM’ who then asked the petroleum ministry to seek the ‘Attorney General’s opinion on whether gas prices could be increased midway as demanded by Reliance’. The activists pointed out that the public sector NTPC did not get any support from the government when the Pranab Mukherjee-headed EGoM cleared RIL’s request for a hike in the gas price from $2.34 to $4.2 per mBtu. They did not forget to add that Mukesh’s own brother’s company, RNRL had been at the rec
eiving end when the gas price was hiked.