People's Democracy

(Weekly Organ of the Communist Party of India (Marxist)


No. 26

June 26, 2011




CAG Report Vindicates CPI(M)’s Position


THE draft of the CAG report on the audit of the production sharing contracts for KG basin gas has already exposed the nexus between the UPA government and M/s Reliance Industries Ltd (RIL). This also vindicates the stand taken by the CPI(M) in parliament since December 2006.


This was asserted by the CPI(M) at a press conference, organised at New Delhi on June 17, where the party released a statement giving details of the bungling that has taken place in the KG Basin gas deal. While Tapan Sen, a CPI(M) member of Rajya Sabha, brought out the murky details of the deal, CPI(M) Polit Bureau member Sitaram Yechury analysed the political and other implications of the whole affair.


The CPI(M) statement released at the press conference pointed out that when a question on the status of gas availability, output, capital expenditure etc was first raised in Rajya Sabha on December 12, 2006 by CPI(M) members of parliament, Tapan Sen and (late) Chittabrata Majumdar, the government had informed that M/s RIL-Niko consortium had submitted a development plan which envisaged an increase in production from 40 to 80 MMSCMD and an increase in expenditure from 2.47 billion dollars to 8.84 billion dollars.


It was immediately pointed out in a letter by Tapan Sen to the minister of petroleum and natural gas, dated December 21, 2006, that the expenditure per unit of production, which should come down with the increase in production due to economies of scale, had been inflated abnormally, warranting immediate corrective intervention by the government. This was followed up with three letters on the same lines --- on January 25, 2007, February 27, 2007 and March 12, 2007, following which the concerned minister responded that the matter was being examined.


On April 30, 2007, a detailed letter was sent to the minister of petroleum and natural gas with copy to the prime minister in view of the impact of gold-plating (artificial increase in cost) on the price of natural gas which is also the major input for power and fertiliser. However, on May 15, 2007, in reply to a question in parliament, it was informed that the revised capital investment has been approved by the Director General of Hydrocarbons (DGH).


Three more letters were sent to the prime minister directly, for his intervention to stop gold-plating and ensure that the price of natural gas is not abruptly increased.  One of these letters was acknowledged but no action was taken. Subsequently, the price of natural gas for consumers was also fixed at 4.2 dollars per unit by the Empowered Group of Ministers (EGoM) in September 2007 in favour of the RIL, overlooking its earlier offer of 2.34 dollars per unit for the same to the National Thermal Power Corporation (NTPC).


Action was sought against the former DGH through letters in August and October 2009 to the minister of petroleum and natural gas. However, though the Central Bureau of Investigation (CBI) had sought for full probe about the DGH, no action has been taken so far.


In view of all these facts, the CPI(M) has demands immediate action against the former DGH and other officials who have colluded in this sordid affair, causing loss to the government and unduly benefiting the Reliance Industries. The party has also demanded immediate amendment of the present pricing formula in production sharing contract (PSC) in consultation with the Comptroller & Auditor General of India (CAG).


The CPI(M) is of the opinion that the draft report of the CAG is only the tip of the iceberg. Besides revenue loss to the government due to gold-plating, the hike in gas price in favour of M/s RIL in September 2007 has implications in terms of increased power tariffs and higher fertiliser subsidies.


In this regard, the party has asked the prime minister to clarify the following points:


a) Why did the pricing exercise undertaken by the government take into consideration only the price of 4.2 dollars per unit offered by the RIL and ignored the price offered by the same RIL to the NTPC which was much lower?


b) Why did the government ignore the NTPC’s and the power ministry’s view before the committee of secretaries in July 2007 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”?


The CPI(M) has also demanded that the gas price be immediately delinked from the international dollar price of crude. The price of KG basin gas should be revised on the basis of the actual cost of production and a cost-plus formula.