People's Democracy

 Clarify Intervention on KG Basin Price Hike

CPI(M) MP Writes to PM 

Below is the full text of the letter written by CPI(M) MP Tapan Sen to the prime minister Dr Manmohan Singh on March 21, 2012 in regard to reported intervention of PMO in the Reliance Industries Ltd’s plea for upward revision of Krishna Godavari basin gas price.

THERE are disquieting media reports about PMO’s intervention on M/s RIL’s plea for upward revision of KG D6 gas price of 4.2 dollar/mBtu. This price itself was fixed quite arbitrarily, hurting the interest of NTPC, a public sector power enterprise of global repute, which had been pointed out time and again to you by the undersigned.

The intervention, if true, appears to be unsolicited as Ministry of Petroleum had already on record rejected this unjustified plea by M/s RIL as KG D6 gas price is valid for five years till 2014. As a matter of fact, RIL’s similar appeal was turned down in 2010 by EGoM, headed by the finance minister. As you are kindly aware, price hike in natural gas will lead to more government subsidy in fertilizer as well as higher power tariff for consumers. It is therefore quite perplexing that while the government is on the one hand crying hoarse on subsidy, PMO is reportedly asking the Ministry of Petroleum to reopen the issue of pricing of KG D6 gas, ostensibly under the pressure of M/s RIL.

It is not clear as to what public interest prompted such reported intervention by PMO.     

It is further shocking that RIL’s record as a contractor of KG D6 gas field has been totally ignored before the intervention by PMO/EGoM. In this connection, please refer to the reply of Ministry of Power, in parliament on 20.02.2009.

“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. 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-generation still remains elusive.   

As on date, production from KG D6 field is less than 40 MMSCMD against assured 80 MMSCMD, and the reason has been explained by Shri Jaipal Reddy, Minister of Petroleum and Natural Gas in his letter to the undersigned on March 7, 2012, as quoted below.                                                                                                                                                                                               

“As regards the decline in the production of gas from KG D6 field, Directorate General of Hydrocarbons (DGH) has reported that the reasons for decline in gas production is due to drilling of only 22 wells (18 gas producing wells and 4 wells drilled but not connected or put on production) as against 31 producing wells approved for drilling up to March, 2012 according to Field Development Plan (FDP). The Contractor has expressed inability to firm up appropriate drilling locations on the plea of geological complexity. DGH has not agreed to the Contractor’s contention and asked the Contractor to comply with the approved FDP. In addition, five out of total 18 gas producing wells in D1 and D3 fields have ceased to produce gas due to water-loading/sand ingress in the wells. One oil/gas producing well in MA field out of 6 oil/gas producing wells has ceased to produce oil/gas due to water loading in well.”

Obviously by cutting down the production, the contractor is trying to arm-twist the government to increase the gas price.

In view of the above you will agree that PMO owes a reply to the nation as to why instead of penalising RIL, the contractor, for its acts of omission/commission, a channel is being opened for rewarding RIL through a price hike, irrespective of actual cost of production of KG D6 gas. I request you to kindly advice the PMO accordingly.