Sunday, August 9, 2009

cat that got the cream

Government's consistent stand in parliament is that it doesn't have any role to play in fixing gas pricing, its role is limited to ensuring that it gets its shares of profit from oil and gas as part of the production sharing contract.

According to the Directorate General of Hydrocarbons, RIL's cost of producing gas is $1.28 per million unit. Oil ministry and RIL have connived to fix the gas at $4.20, while the NTPC and RNRL pricing was fixed at $2.34. This is the simple part. Now we come to the more complicated part. RIL has been regularly hiking its capex development plan with the DGH. Right now the figure is Rs 45,000 crore. There is a reason behind this.

Under the PSC, the contractor RIL first gets to recover all its capex field development and operating costs and only then begins to pay the government. That constitutes profit gas. By bloating the field development cost, RIL is ensuring that the government gets practically nothing, while its pockets the cream.

Ergo, if the capital expenditure plans go up, the government's profits fall. That is why RIL would not like CAG to audit its KG Basin capex plans because then the truth will be uncovered and the gigantic fraud perpetrated on the Indian people will come to light. Incidentally the four member 'management committee' which approved the capex plan consists of two RIL personnel and two oil ministry personnel. Cosy set up, no?

All this under the watchful gaze of the people of India. Making it a Rs 45,000 crore scam. The largest ever.


prah said...

billions of dollars are at stake not just for the feuding Ambani brothers but for the government as well. It is apparent that the government’s actions have contributed a great deal to this mess.

The thing is that there does not seem to be any clear-cut policy at all. For example, the government changed its stance on its role in gas pricing three times – from stating that price should be market-determined to stating that it has an explicit role in approving sales price. Similarly, it did a U-turn on the issue of the MoU between the Ambani brothers. It initially maintained it had nothing to do with “a private dispute”. Now it is contesting the Bombay High Court order of June 2009 and has dubbed the MoU as illegal.

With billions of dollars at stake, the irony is that the government has adopted a stance which will deny it its rightful share in the revenues until RIL has had its fill!

George said...

The Ambani gas dispute has rocked Parliament and the government’s role has been questioned. It is not really for the government to object to an MoU between the Ambani brothers. Rather it should be scrutinising its own agreement with RIL when it allocated the KG D6 block originally for any deviations or discrepancies therein.

That Murli Deora now admits that the government has nothing to do with the “private dispute” shows that the government has now realised that it should not question a commercial decision between two business houses.

Nikhil said...

The Petroleum Ministry’s plea for raising the prices of gas supply from RIL to the international price of $ 4.20 and not the lower price of $ 2.34 is not justified. As per the terms of the PSC, if this comes through, 99% of all revenues and profits will go to RIL, and only a measly 1% will accrue to the Government. This is because RGTIL, a private company co-owned by RIL’s promoters, transports gas from one place to another.

This is the case even when RIL’s own international partner in the KG D-6, Niko Resources, had written to the Government stating that as per the PSC, the Petroleum Ministry has no powers to fix the sale price. The government should thus pay heed to RNRL’s request to the NTPC to protect its assured gas supply from RIL at a price of $ 2.34 in order to safeguard itself against potential losses of up to Rs. 30,000 crore.