Economic Highlights

New Delhi, 11 September 2009

Ambani Brothers’ Row

LET’S STOP GAS-SING AROUND

By Shivaji Sarkar

Finance Minister Pranab Mukherjee recently said he knew the Ambanis (Mukesh and Anil) closely but it would be inconvenient for him to mediate. The Minister’s closeness has never been a secret. What surprises is his acceptance of the feud over the sharing of the Krishna-Godavari basin natural gas, as their family affair.

Gas, like any natural wealth belongs to the nation and no individual or corporate can claim it as its own and fight to appropriate it. But, sadly this has been happening for the past two years and the nation in quiet discomfort is observing the bitter feud that robs the nation of massive wealth to enrich one of the two Ambani brothers with Rs 50,000 crore.

The people’s representatives, the most empowered people, both in the Government and Opposition, have been batting for one or the other Ambani. Sadly, nobody has spoken for the nation. It seems that Pt Jawaharlal Nehru’s worst fears have come true. He had chosen to make Delhi as the Capital against the suggestion of Mumbai to keep political powers free of the influence of corporate interests. Today, the corporates are running the Government. Shockingly, their personal interests are being perceived as national interest.

Interestingly, some view this Ambani feud as having a positive side. Had it not been there, the nation would not have debated the key issue: who does the gas belong to? It all began in 2000, when under the National Exploration Licensing Policy the Krishna-Godavari gas field was allotted to Reliance Industries Ltd (RIL). The gas field was discovered by public sector agencies, whereas the NELP is for commercial exploration and does not give exclusive sole right. This is often forgotten.

The gas war has raised many questions on policy, pricing process and highlighted the absence of regulatory oversight. First, what is the price of this gas? The Anil Dhirubhai Ambani Group’s (ADAG) Reliance Natural Resources Ltd (RNRL) is insisting it to be $ 2.34 per mmBtu (per million British thermal unit - One cubic foot of natural gas produces approximately 1,000 BTUs, so 1,000 cu.ft. of gas is comparable to 1 mmBtu) on the basis of an MOU with Miukesh  Ambani’s  RIL. However, the RIL says it should be $ 4.20. And, the Government says “as per the quotes from existing power and fertilizer companies capable of consuming gas when available” that should be the price. The RIL says the empowered group of ministers (GOM) had approved $ 4.20 price.

The next obvious question then is: if that is the correct price, how did the MoU between RIL and RNRL arrive at the price of $2.34? It should be recalled that before the legal separation they were two companies of the same family. Was it a case of enhancing and protecting family wealth? One view would be that had they not got separated the lower price would have immensely enhanced profits of the group.

The RIL had not signed a similar MoU with other companies except the public sector National Thermal Power Corporation (NTPC) in 2004. Then too the price was $ 2.34, says the NTPC in a petition in the Supreme Court representing against a ruling of the Bombay High Court. The NTPC petition suggests that RIL had raised the price arbitrarily and got support from the GoM. It further said that RIL’s application for amendment of its original written statement after the commencement of trial was liable to be rejected.

The concept of NELP is to make energy available at an affordable price. The ADAG says the Government’s approval to raise the gas price benefits RIL by a whopping Rs 50,000 crore. The issue in reality is not sheer direct benefit but also raises the moot question of making energy costlier. The high cost to NTPC is certain to be passed on to the electricity boards and then on to the consumers. This is likely to add to the inflationary situation. In the end, it is the common man who is the loser.

Meanwhile, the NTPC has been accused of being laid back, for whatever reason in pursuing its interest on allocation of RIL gas. And, the danger is that it may finally not get any gas at all. Obviously, it would hit the common man the most. And, this is what RIL has tried to impress upon and thereby challenged the role of the Government.

But it is not as simple as it appears. Samajwadi Party supremo Mulayam Singh Yadav who is known to be very close to Anil Ambani hurled accusations against Petroleum Minister Murli Deora. The Left leaders Sitaram Yechury, D Raja and Brinda Karat said there was no justification of pricing gas on the basis of linkage with international price. On the other hand, BJP leader Yashwant Sinha says the Government cannot say it is national property and then not answer certain questions. Power Minister Sushil K Shinde says his ministry is not concerned with the disputed agreement with the petroleum ministry. “Our case is in court”.

Some circles in the Government argue that higher fixation of gas price would generate higher revenues for the UPA Government. Throughout the feud, the Anil camp has been trying to drive a wedge between the different arms of the Government and the petroleum ministry. The latter says it is sovereign property and does not add whether the Government would remain neutral, review its pricing policy or allow the corporate NELP licensees absolute freedom to fix the price benchmarked to a global index.

The dilemma in the Government is obvious. While deciding on NELP, it did not foresee a situation like this. Likewise, the petroleum ministry was learning through experience. Clearly, the present issue is ticklish. Any decision would be helping one or the other Reliance companies in terms of market capitalization, equity value and overall profit. The petroleum ministry might end up being accused partisan. The NTPC, despite the noises, is a non-player. But if the power ministry effectively pitches in, the rule of the game might change. But so far it has not displayed such will.

The bitter battle also continues in the Supreme Court. On July 15, the Bombay High Court had asked RIL to supply gas to RNRL at $ 2.34. That day RIL lost Rs 32,574 crore in market capitalization and the RNRL gained Rs 3438 crore. The fratricidal war is aimed at this.

Surely, the nation cannot be content. It needs to evolve a pricing policy that suits the interest of the man on the street. Presently, nobody seems to be interested in his welfare. Political parties too need to play for the people and not one or the other corporate group. Let Nehru’s ideal be the political motto. ---INFA

 
(Copyright, India News and Feature Alliance)