On 4 December 2012, soon after activists Arvind Kejriwal and Prashant Bhushan launched their political outfit, the Aam Aadmi Party, they convened a media conference and accused the Narendra Modi government of it favouring particular industrial houses, among which was Jubilant Enpro that held 10 per cent in the GSPC’s gas venture in the KG basin. Jubilant Enpro is controlled and headed by Shyam Sunder Bhartia, husband of the head of the Hindustan Times newspaper group (owned by HT Media Limited) Shobhana Bhartia, who is also member of the Rajya Sabha, the Upper House of India’s Parliament. Shobhana Bhartia, chairperson and editorial director of the HT group is the daughter of the late K.K. Birla who was also an MP and loyalist of the Congress party. Her husband, Shyam Sunder Bhartia heads the Jubilant group of companies which has interests in chemicals, besides oil and gas. Kejriwal said that it was ‘rather strange’ that the Modi government had gifted away a valuable stake to someone perceived as close to the Congress party as the Jubilant group headed by Shyam Bharita and that the central government had chosen to keep quiet on an industrial scam in Narendra Modi’s state for so many years.
Kejriwal pointed out that GeoGlobal’s Jean Paul Roy was not just close to Modi but had received favours from the Congress-led UPA government in New Delhi. He noted that on the basis of the first contract with the Modi government in February 2003, Roy had entered into several production sharing contracts, most of them with Oil India Ltd (OIL), a central public sector undertaking, during the tenure of the UPA government. Kejriwal brought up the fact that the Modi government had recommended to the Union government on 18 August 2010 that it cancel the agreement with GeoGlobal when the CAG started auditing the accounts of the GSPC- GeoGlobal-Jubilant venture in the KG basin. Despite ‘tens of letters and reminders’ to the government (MoP&NG), there was no step made to ‘cancel permission’ to the venture.
Kejriwal and Bhushan highlighted the value of the stakes that been ‘gifted’. He recalled that RIL’s fields in the same area stake were valued at $24 billion when a 30 per cent stake was sold to British Petroleum (for technical assistance) under a ‘similar production sharing agreement’ for $7.3 billion (Rs 35,000 crore). Each of the 10 per cent gifted to GeoGlobal and Jubilant were valued at Rs 10,000 crore. They alleged that the two largest political parties in India who are supposed to be opponents, acted as one when it came to handing out ‘favours’ to industrial houses and that these parties were ‘puppets’ in the hands of these corporate captains. This indeed indicated that India was entrenched in a culture of crony capitalism, they claimed.
The Jubilant group issued a ‘denial’. The group stated that it had won the block in the KG basin through a process of international competitive bidding under NELP III, that it was a partner in the block and ‘pays fully for its 10 per cent share in expenditure’. The company further stated that the contract had been awarded by the MoP&NG ‘along with 22 other blocks at the same time to various parties, both PSUs and private sector’. Specifically, the block was ‘originally an exploration block’ with the first discovery being made in 2005 (see the Hindu Business Line, 5 December 2012) By implication, the Jubilant group argued that it should not be held responsible for the low output of gas.
As for Roy, he remains an enigmatic figure. However, a particular article written by Mitul Thakkar in the Times of India on 6 December 2012 may be interpreted as an attempt to provide the point of view of the Canadian geologist based in Guatemala. The article claims Roy was ‘a bee in Narendra Modi’s bonnet long before Arvind Kejriwal ‘discovered him’ and alleged that ‘the scientist’ had made billions overnight from sweetheart deals. It added that Roy had apparently ‘publicly questioned’ Modi’s announcement that there was 20 tcf of gas in the field and described the claim made by the Gujarat chief minister as ‘premature’ and had promptly filed a clarification with the stock exchange in the US where the shares of Roy’s were listed. Thakkar’s article in the ToI cited his curriculum vitae: ‘Roy began his career with Petro Canada, where he taught himself to interpret data to produce geological models for blocks in Africa, America and Europe. Later, he spent a couple of years with Canadian geophysical software solutions provider GEDCO. This assignment gave him exposure to several blocks in Russia, Canada, Chile, Colombia and Yemen. Later, US company Eurocan appointed him chief geophysicist.’
Apparently, Roy had also questioned the high drilling costs of $2.5 billion incurred by GSPC on a project that was five years behind schedule. The article even quoted a senior GSPC official batting for Roy by stating that his company, like Cairn, was interested in listing its shares in India rather than the in the US. Former ONGC chairman Subir Raha had served on the board of directors of GeoGlobal till he passed away, while former DGH, Avinash Chandra was also a director in the company. Thakkar’s article claimed that when Roy questioned Modi’s announcement and GSPC’s alleged ‘maladministration’, the latter stooped sharing information about exploration activities and started demanding payments for the investments in the Deen Dayal block. Apparently GeoGlobal was the ‘harassed party’ and had written ‘countless’ letters to GPSC for ‘settlement and information’. The Gujarat government had ‘deviated’ from the technical advisory document provided by GSPC, the ToI quoted an undisclosed ‘former associate’ of Jean Paul Roy as stating. Since ‘GSPC kept delaying the deadline for commercial production’ from the Deen Dayal block, GeoGlobal as well as the Jubilant group had ‘suffered financially’ and Jubilant at one stage had wanted to exit the venture, it was contended.
All this apparently led to a situation where ‘Roy kept losing the faith of investors and financers, and issued new shares to raise funds.’ By then, it seems that ‘luck seems to have suddenly run out’ for the swashbuckling oilman and with his Indian team members ‘leaving for greener pastures’ in August 2010, he lost control over GeoGlobal Resources and left the board of the company. He diluted his majority stake in GeoGlobal Resources but kept a five per cent in interest. Thakkar’s article in the ToI portrays Roy as a much-wronged expert whose ‘contribution to GSPC’s success has been overshadowed by other events’ such as differences with financiers, shareholders, and even disgruntled employees. At certain points, the article turned hagiographical and hilarious. Roy is described as a person who was living in exile after he resigned from GeoGlobal, that he had refused to talk to the media to give his point of view, that he drove around in a Mahindra Scorpio ‘fondly imported from India’ and that he was a man ‘whose only hobby is to build and interpret geological models’ and that he still wanted ‘corrective action’ to be taken in the development plan of the Deen Dayal Block, ‘where GSPC has pumped in almost $2.5 billion and not produced any gas.’
The article raised more questions than provided answers. What was the nature of Roy’s association with Niko Resources and the Reliance group? Was he really a dedicated geologist who had India’s interests at heart? Or had control over the country’s natural resources been left to a buccaneer?
After the Tehelka article and Kejriwal’s allegations generated some heat, the news portal Firstpost posted an article on 6 December 2013 by an unidentified writer (the byline was ‘FP Politics’) that sought to defend the Gujarat government company’s alleged misadventures in the KG basin. It will be pertinent here to mention that the Firstpost website is owned by a company in the Network18 group in which the Mukesh Ambani-headed Reliance group has investments. The article that was posted significantly bore the strapline ‘GeoGlobal deal tainted by lack of diligence, not corruption’. Seeking to conflate Kejriwal’s allegations and the Tehelka story together, the post slammed the ‘reheat-and-serve’ media conference convened by the Aam Aadmi Party activists and said that all that Kejriwal and Bhushan had done was to provide the ‘spin’ that the BJP government in Gujarat and the Congress party enjoyed a ‘cosy relationship’, that they were ‘joined at the hip on corrupt deals’. The Firstpost article then went into contractual technicalities to contend that GeoGlobal (no mention is made of Jubilant) did not pay anything for
its stake, and that the company’s share in the cost of exploration was paid by GSPC. Rather than indicating corruption, the relationship between GSPC and GeoGlobal could be called a ‘carried interest’ partnership, ‘widely prevalent in international private equity and hedge fund deals’. Under this proviso, a general partner could well receive a share in future profits as compensation, such methods ‘used as an incentive for maximising profits and performance’. Also, in context of the fact that oil exploration does not come with certainty of success, the ‘general partner’s involvement is not risk-free’. If at all blame was to be apportioned, it was GSPC that was at fault for not having conducted adequate due diligence before inducting other partners in its eagerness to seek technical assistance to prepare the geological models needed for exploration.
In another argument, a rather blasé and crass one, the Firstpost article by an unidentified writer sought to explain why the Gujarat government ‘may have slipped up on the due diligence process’. The consortium was signed on 27 March 2002, ‘a month after the Godhra train burnings, and the (Hindu-Muslim) riots in the state, which were the cause of much political uncertainty’. The chief minister was barely a few months into office and ‘something of a political lightweight’, at a time when there was speculation that then Prime Minister Atal Bihari Vajpayee ‘was under pressure to force Modi to step down’. The article reiterated the point that the supposedly immature chief minister’s ‘over-the-top’ assessment of 20 tcf gas was countered by Jean Paul Roy who had called it ‘premature’ but that this had led to strains in the geologist’s relationship with the state government. The diagnosis: ‘While there is a case to be made that the GSPC was perhaps less than diligent in the choice of its consortium partners when it entered into the deal in March 2002, barely a month after the riots – for which it was justifiably wrapped on the knuckles by the CAG – it seems a stretch to allege that the transaction was tainted by corruption, particularly in the absence of prima facie evidence.’
On 8 December 2012, another lengthy article on the subject popped up on Firstpost. This time, the ‘wordy’ counterview for GSPC was written by Kartikeya Tanna and a disclaimer put out that he was partner at a firm of lawyers, Tanna Associates Advocates of Ahmedabad, which was representing GSPC and the Gujarat government before the Justice M.B. Shah Commission of Inquiry, ‘which was inquiring into, inter alia, allegations against GSPC’. Tanna set the tone of his article with a sweeping statement that attempted to counter the view that crony capitalism has become inherent in the Indian polity. He wrote: ‘In the atmosphere that India finds itself in recently, any government dealing which does not quite fit within one’s worldview is peddled as a humongous scam.’
Tanna then attempted to emphasize the ‘independence’ of GSPC and separate it from the state government, although the company was owned and had been established by the Gujarat government. He pointed out that GSPC had a board of directors with ‘sufficient autonomy’ in business matters. He then harked back to the genesis of the involvement of private companies in India’s hydrocarbons sector in the 1990s, when GSPC, originally a petrochemicals company, had participated in the Union government’s bids for development of oil and gas fields. Private companies had to depend on experts and that was how GSPC offered Niko Resources a participating interest of 33-40 per cent, to assist in developing ‘five discovered oil/gasfields’ awarded to it. Tanna pointed out that when Niko went to Jean Paul Roy, the Congress was in power in Delhi. However, when the NELP III round of bids were subsequently made, GSPC found it difficult to find technical partners. He emphasized that these bid rounds were mean for exploration (and not production) and flagged the risk factor. Thus, ‘old associate’ Roy was invited by GSPC.
While arguing his case, lawyer Tanna slipped in bits of information (perhaps inadvertently) that was tantamount to an admission that GSPC selected its two partners (GeoGlobal and Jubilant) without bids, a stick with which the CAG had rapped the state government. This is what he wrote: ‘To ask in hindsight why GSPC did not select its partners by way of a bid [emphasis ours] is to ignore the realities of how little interest the exploration business with GSPC generated back then. Auction is not a sine qua non to be followed in every situation, even if there is scant interest in what one is offering.’ Then, as an aside, he added that by way of ‘contrast’, GSPC ‘invited bids when its projects... entered the development stage which has many takers’. Tanna argued that technical experts who bring in their intellectual property rights (IPR) to the table command a 2-3 per cent interest, if not a flat fee. Since Jean Paul Roy or his company GeoGlobal did not have the financial muscle to contribute 10 per cent for exploration costs, but since his expertise and IPR were vital, the companies came together through the ‘carried interest agreement’. The advocate does not fail to mention that GeoGlobal ‘would not earn any revenues from monetisation of the natural gas till (a) all priority payments/disbursements were made, including royalty to government; and (b) GSPC was reimbursed all costs it paid on GGR’s behalf’.
The lawyer then provided technical arguments to explain the delays. But here too, he let out that GSPC received faulty technical advice (the blame for which was laid at the door of the experts by the CAG). Tanna stated: ‘What went wrong? Due to the changes in technology, the interpretation of the 3D (third-dimensional) seismic data indicated that GSPC could explore deeper rock formation (of the Cretaceous age) which had earlier never been explored on the eastern coast of India. As drilling activity progressed, the initial estimates drastically shot up. High oil prices were also a contributing factor.’ This was when GSPC asked GeoGlobal to pay its share of ‘costs incurred in excess of the initial estimate’ and the latter refused relying on the terms of the agreement. Tanna claimed the dispute led to delays and denied that the price was eventually paid for by the taxpayer. On behalf of his client, he maintained that GSPC had ‘relied on its own internal reserves and surplus, credit line and borrowings’. The writer does not provide specific figures in this regard. Kartikeya Tanna’s conclusion: The project had lapses, the agreements could have been drafted more tightly (another admission!) leaving no scope for a lingering dispute on interpretation, but GSPC could not be accused of handing over a ‘sweet deal’ if one were to appreciate the ‘circumstances of the times’!
Despite these legal arguments, what cannot be denied is that the entire episode related to the working of the venture between GSPC, GeoGlobal and Jubilant has indeed raised a number of serious questions and doubts about the way in which the country’s natural resources (in this instance, gas) are managed through production sharing contracts that are signed between private corporate entities and different government agencies.
APPENDIX 8
Gas Pricing: Meaning of ‘420’
Here is the full text of the speech delivered by former Union minister for petroleum and natural gas Mani Shankar Aiyar on 26 September 2009 at a closed-door meeting of the ‘Saturday Lunch Club’ in New Delhi’s India International Centre. The speech was made under the Chatham House rule ostensibly to ensure confidentiality of the speaker.
Mr Chairman, friends,
It would be impossible in the 20-25 minutes given to me to go into all the complexities of the policy issues involved in the question of gas pricing against the background of the commercial dispute between two brothers of eminence that has brought these arcane issues to unprecedented public attention, but I hope we can set out the broad framework and fill out the details….
First, there are a couple of technical terms we might put out of the way so that they do not clutter our thoughts. One, gas output is measured in terms of million metric standard cubic metres per day (mmscmd) and, two, sold in terms of British thermal units (Btu).
Before the Reliance discovery, our national domestic output was 75 mmscmd. The Reliance discovery has already increased that by half, and at peak production will more than double current domestic output, taking total national production to almost 200 mmscmd. That will make us self- sufficient
in gas at present levels of demand. And since Reliance have thus far explored only about 4 per cent of the area allocated to them, and ONGC (Oil and Natural Gas Corporation) appear on the verge of announcing almost as significant discoveries in areas they are exploring, India could emerge as a gas-surplus region over the next decade or so. Given that till a decade ago, we were seriously gas-deficient, and that when in 2005 I referred to the Bay of Bengal as the North Sea of South Asia, it was treated as a bit of hyperbole, you can see how the Reliance breakthrough constitutes probably the single most important giant step towards energy security ever. And as this has happened even as global petroleum prices have sky-rocketed, the potential savings in foreign exchange outgo reinforce the discovery’s inherent potential for accelerating growth in India to China levels and, possibly, even beyond.
The credit for this wholly unexpected, if highly welcome, breakthrough must go to the New Exploration and Licensing Policy (NELP), launched in 1997, which opened the Indian petroleum sector to investment by the private sector, both Indian and foreign, as well as in collaboration with each other, while still encouraging public sector entities, notably ONGC, to continue being major petroleum players in our economy, albeit in open and transparent competition with the private sector.
NELP attracted domestic and international bidding principally because it promised freedom of marketing to the investor, as well as the right to recoup his legitimate capital expenditure (capex) before paying anything to (the) government. ‘Cost petroleum’ is the term used for the petroleum marketed to recoup capital expenditure; ‘profit petroleum’ is what has to be shared with government, as the owner of the sovereign national asset being worked on by the NELP contractor. Further – and this is crucial to understanding the present controversy – NELP contracts have always distinguished between the price at which gas may be sold [emphasis his] and the price at which gas will be valued for purposes of determining the royalty payable and, more importantly, of determining the government’s share of profit petroleum. The selling price was never conceived as being co-terminus with the valuation price.
GAS WARS: CRONY CAPITALISM AND THE AMBANIS Page 54