People's Democracy

SUPREME COURT VERDICT ON KG BASIN GAS  

Without Prejudice to the EGoM

Dipankar Mukherjee 

THE Supreme Court in its recent verdict on KG Basin Gas case has very rightly reiterated that the Constitution envisages exploration, extraction and supply of natural gas to be within the domain of government function and it is the duty of the government to make sure that these resources are used for the benefit of the citizens of this country.  It has therefore directed that the policy of the government, including the gas utilisation policy and the decision of the Empowered Group of Ministers (EGoM) would be applicable to the pricing in the present case. The verdict is a reminder to the government that the benefits of gas should flow to the people of this country by virtue of Article 297 of the Constitution of India, a position which was taken by the CPI(M) and was pointed out to the UPA I government after the family agreement of Ambanis on KG gas came out in the open.  

However the hon’ble court also makes the following observation: 

“At the outset, it is to be noted that the price determined by the government is not subject matter of either the company application nor is it an issue which arises out of the impugned judgment… Further without such a proceeding in existence and without NTPC being a party in the proceeding, any issue touching upon the validity of price fixation or price formula does not arise”  

It is therefore very clear that the gas price of 4.20 dollar per unit approved by the government for KG Basin gas by RIL has not been examined by the hon’ble Supreme Court.  

WHY DID THE SC

REFER TO NTPC? 

For the simple reason, that in spite of being a government-owned power generation company, NTPC was an aggrieved party vis-a-vis the price approved by the government. How? Before the family agreement in 2005, and much before the government approved the price of 4.20 dollar per unit that too for a 5-year period, the RIL had offered a price of 2.34 dollar per unit for the same gas for the 2600 MW Kawas & Gandhar projects of NTPC in response to an international competitive bid floated by NTPC in 2004.  Let us recapitulate what the then minister of power Jairam Ramesh informed the parliament on this issue on 20.2.2009. 

“NTPC invited bids under International Competitive Bidding for procurement of natural gas @ 132 trillion British thermal units per annum for Kawas-II and Gandhar-II power projects for a period of 17 years. Reliance Industries was evaluated as the lowest techno commercially acceptable bidder and NTPC accepted its offer.  Accordingly a Letter of Intent (LoI) was issued to RIL on 16.06.2004 which was duly acknowledged and confirmed by RIL.” 

RIL’s bid was for supply of 12 mmscmd (million standard cubic meter per day) of gas from KG basin at 2.34 dollar/mmbtu to NTPC for 17 years. What happened thereafter?  This is what Jairam Ramesh explained in the aforesaid reply in parliament: 

“After the issuance of LoI, RIL did not come forward to sign the Gas Sale and Purchase Agreement (GSPA) and sought major changes in the agreed draft of GSPA.  NTPC pursued with RIL at various levels and various meetings to sign the GSPA, as per the draft accepted by RIL during the bidding process.  However in spite of all the efforts RIL did not sign the GSPA agreed during the bidding process.” 

NTPC ultimately had to file a suit as aggrieved party in Bombay High Court in December 2005 to get the gas at 2.34 dollar per unit for 17 years.  The case is still sub judice and 2600 MW power still remains elusive. 

Hence hon’ble Supreme Court in its wisdom felt it prudent to record that NTPC is not a party.  While the government intervened in the case between two brothers on KG Gas to assert the government’s ownership, NTPC’s intervention was equally necessary to assert the gas price of 2.34 dollar per unit in the national interest as the consumer has to pay much less power tariff in that eventuality as compared to the gas price of 4.2 dollar per unit. 

WHY WAS NTPC

PREVENTED?

NTPC was keen to intervene on the price issue as was secretary, power ministry who publicly stated the same.  But the power minister Sushil Kumar Shinde and petroleum minister Murli Deora were not.  And NTPC was not allowed to be a party to the case with an  assurance that NTPC’s interests would be taken care of.  Why did the government, particularly the ministry of petroleum, not want the pricing issue to be raised in the court by NTPC?   Because many beans would have spilled out which could be embarrassing to the “Empowered Group of Ministers” who approved the price of 4.2 dollar in spite of 2.34 dollar price for which LoI was already issued by NTPC a company owned by government of India which is represented by EGoM.  For example, if NTPC had been a party to the case, then the letter of its chairman sent in August 2007 to chairman, EgoM, would have come into the judicial domain.  The letter stated: 

“In continuation of the presentation I made on the gas pricing issue of Reliance Industries Limited for KG basin gas with particular reference to NTPC contract, I would like to convey that implication of price differential between gas price delivered as per NTPC contract and RIL’s proposed price, will be of the order of Rs 24,000 crore for the quantity contracted by NTPC during the contract period of 17 years…. I would once again request that NTPC’s rights under the contract with RIL are not jeopardised in any manner while the government takes a view on the price proposed by RIL.” 

Look at the figure – Rs 24,000 crore for supply of 12 mmscmd only.  RIL is supposed to supply in the first phase of production of KG basin gas, a quantity of 60 mmscmd.  So, the government’s approved price of 4.2 dollar for RIL gas from KG basin means an extra amount Rs 1,20,000 crore straight away. And who has to dish out this additional amount?  Obviously not NTPC, but the consumers of power! Further the 2.34 dollar price was for a period of 17 years. But the EGoM approved the price of 4.2 dollars for a period of 5 years only.  If some other EGoM increases it further after 5 years, the windfall profits figure would be a mind boggling one.

WITHOUT

PREJUDICE? 

How has the government been consistently taking care of NTPC’s interests?  Before and after approving the cost of gas at 4.2 dollar per unit, which was strongly opposed by the NTPC, both Deora and Shinde have been singing only one tune i.e. “This price will be without prejudice to NTPC’s case.” Solicitor General, Gopal Subramaniam, reiterated the same before the hon’ble Supreme Court that the price of 4.2 dollar is without prejudice to the stand of the government vis-a-vis NTPC. 

Pray, what does it mean?  Without prejudice to the EGoM, will someone please explain what the government will do if the Mumbai High Court gives a verdict in favour of NTPC for 2.34 dollar gas price! Will it bring down its approved price of 4.2 dollar to 2.34 for all consumers or only two plants of NTPC will enjoy 2.34 dollar price of gas while all other power plants pay 4.2 dollars for the same gas?

The government knows that such an eventuality may not arise at all as they have already prejudiced NTPC’s case by approving 4.2 dollar price for RIL. On top of that, Deora has decided that the cost of gas of PSUs – ONGC and OIL – which is now priced at 1.79 dollar per unit, as per administrative pricing mechanism, will be increased to 4.2 dollar per unit.  Now, don’t be under any illusion that this is for the sake of financial health of ONGC & OIL. It is another case of deception to help the favoured contractor i.e. RIL. Actually customers i.e. power producers and fertiliser producers are vying for low cost gas from ONGC and OIL. Deora wants to ensure RIL’s market and hence the decision to enhance ONGC & OIL gas price. The government has taken the whole nation for a ride. Increase of ONGC and OIL gas price to 4.2 dollar means an additional burden of not less than around Rs 100,000 crore to power and fertilizer sector.  So, the whole burden comes to Rs 120,000 crore plus Rs 100,000 crore i.e. a whopping Rs 2.20 lakh crore! All this burden would be passed on to consumers while the favoured contractor would be immensely satisfied.  

The EGoM has to explain as to why the pricing exercise undertaken by the government took into consideration only the price of 4.32 dollar offered by RIL and ignored the price offered by same RIL to NTPC which was much lower. They have to reply to the nation as to why they ignored the NTPC/power ministry’s view that “the pricing of gas should not be linked with international indexing i.e. crude oil liquid fuel and CNG as the same will result in increase in the price of power with multiplier effect fuelling inflation.” It is imperative now for the government to explain the rationale for fixing the gas price at 4.2 dollar per unit for five years when the price of 2.34 dollar per unit for 17 years was already under consideration. Otherwise, without prejudice to the present EGoM, people may treat this Rs 2.2 lakh crore extra burden from KG gas on them as another case of crony capitalism by not one Telecom Raja but by an Empowered Group of Rajas (EGoR). 

And lastly if the Mumbai High Court asks ONGC to pay the government approved price of 4.2 dollar for five years instead of 2.34 dollar, will the EGoR explain how such a rate was quoted by RIL without getting it approved by the government?  Should it not be then treated as gross violation of Production Sharing Contract enabling the government to cancel the contract and take over the KG gas production and distribution in line with Supreme Court observation: “it would have been ideal for the PSUs to handle such projects exclusively”. Instead Deora, Shinde & EGoR will make attempts to misinterpret the judicial verdict to cover up the crime of putting an extra burden of Rs 2.20 lakh crore on the aam admi of India who use gas based power and fertiliser.