People's Democracy

Stop The Manipulation Of Gas Prices

Tapan Sen, MP and secretary of CITU has sent a letter to Dr Manmohan Singh, prime minister on July 4, 2007 regarding the urgent intervention to stop the ongoing manipulation of gas prices by private gas producer and also a thorough probe on artificially inflating the capital expenditure in its New Field Development Plan (NFDP) for exploration of gas at D6 KG Basin by RIL-NIKO combine which is at the root of present manoeuvring of gas pricing.

The queries and charges he raised included

• RIL-NIKO combine originally submitted a Field Development Plan (FDP) for D6 KG Basin with a proposed capital expenditure of $ 2.47 billion for gas production of 40 MMSCMD. Subsequently the same RIL-NIKO proposed almost 4 times hike in capital expenditure ($ 8.83 billion) for just doubling the production (80 MMSCMD) from the same gas field. The proposal was approved by DGH with undue haste. Clearly, the subsequent proposal of quadruplating capital cost for doubling the production defies the basic logic of economy of scale whatsoever escalation of exploration cost may take place in the intervening period between the two proposals, and thus renders itself unreliable.

• DGH took 163 days to approve the original FDP of 2.47 billion U.S dollars filed by RIL-NIKO whereas the NFDP with financial implication of 8.83 billion US dollar (roughly Rs. 39,000 crores), was cleared in just 53 days. This reflects extreme haste, that too for a first-time deepwater development project in India, which smacks of deliberate complicity. To clear the clouds of any such complicity, it is imperative that the corresponding dates for the FDP submitted by M/s GSPC for their KG basin project and by M/s Cairn for their onland Rajasthan discoveries around Barmer should be compared vis-à-vis revised D6 NFDP. In fact, the specific details including dates for all FDPs submitted to the present DGH, whether approved or pending should also be ascertained.

• The NFDP as per DGH is based on capacity to be developed for 120 mmscmd against Peak Production rate of 80 mmscmd. This astounding 50 percent surplus capacity, that too against the peak and not average life-cycle capacity, is sought to be justified by the DGH on the ground that RIL-NIKO, will make additional discoveries in the block without any substantive evidence to justify his overconfidence in the private operators. DGH should be asked to corroborate with specific instances worldwide where Regulator has approved such hidden surplus capacity in deep water FDPs. It is common knowledge that all such process designs invariably provide built-in cushions called design margins to the level of 20 to 30 percent for mission-critical applications. Therefore, design for 80 mmscmd itself will surely have such design margins, and unless proved to the contrary on the basis of independently and expertly verified information, it is apprehended that the DGH’s contention can be construed as complicity in a clear case of gold-plating.

• The presentation by DGH shows the benefits especially the government’s share of profit as calculated on the basis of 4 dollar per mmbtu pricing. It is really shocking how the NTPC-RIL contract to supply D6 gas at 2.97 dollar per mmbtu has been discarded. NTPC is a government owned company, which is presently fighting RIL’s alleged breach of contract in the Court. It is now on record that DGH, a government entity has taken a decision, in spite of the matter being sub judice, that NTPC’s (that is government of India’s) stand is legally and contractually unsustainable. This poses a serious question about the collective working of the government.

• This NFDP amounts to more than 1 percent of India’s GDP. The qualification, training and experience of concerned officials, in DGH and EIL who have scrutinised, processed and approved this NFDP, with specific reference to their experience and competence in deepwater exploration and development should be verified to ensure “Independent Prudence Check”.

The act of artificial jacking up of capital expenditure in D6 KG Basin by RIL-NIKO combine which is having direct bearing on the gas pricing of more than 4.5 dollar per mmbtu is being sought to be pushed to backburner. With such gas pricing, gas may not remain preferred feedstock for power and fertiliser sector.

Tapan Sen urged that the issue requires to be addressed at the root itself and visible act of artificial jacking up the capital cost by RIL-NIKO, should not be allowed to go unnoticed and uncorrected and needs urgent intervention to stop ongoing manipulation of gas prices by private gas producer and benchmark the administrative gas price for power and fertiliser sector. INN