People's Democracy

KG-D6 GAS PRICE ISSUE

‘Mr PM: Don’t Favour Reliance Industries

Move against Millions of Indians’

CPI(M) MP and CITU general secretary Tapan Sen has written the following letter to prime minister Dr Manmohan Singh on May 16, 2012 questioning what prompted the PMO to refer Reliance Industries Ltd’s dubious plea for upward revision of KG-D6 gas price for a legal opinion.  Asserting that any increase in price of gas will immensely benefit the private operator while leading to higher power tariff and fertilizer prices for millions of Indians, the CPI(M) MP demanded forthright rejection of RIL plea.

THANK you for your letter dated 09.05.2012 in response to my letter dated 21.03.2012 regarding PMO intervention on M/s Reliance Industries Ltd’s (RIL) plea for upward revision of KG-D6 gas price of 4.2 dollar/mbtu.

It is unfortunate that instead of addressing any of the substantive issues raised in my letter, which was followed by another letter dated 31.03.2012, your letter formally accepts that a letter from RIL was received by PMO and forwarded to Ministry of Petroleum & Natural Gas (MoPNG) for obtaining legal opinion on the matter and placing it before Empowered  Group of Ministers (EGoM) on gas pricing.

The above fact was well known but my substantive query as to what public interest  prompted the agenda of M/s Reliance to increase the gas price to be sent for legal opinion, when the same was already turned down by MoPNG, remains unanswered. As a matter of fact, you will appreciate that this intervention and subsequent sequence of events are serious acts of omission in the face of desperate bid by the private party to make illegitimate gain before the expiry of the tenure of the present price at the cost of national exchequer and millions of power and fertilizer consumers.

RIL contractor’s plea was turned down by EGoM in 2010. The present plea for price hike of gas was turned down by MoPNG. The same was pointed out to you in my subsequent letter dated 31.03.2012 wherein the following reply to an unstarred question 1509 dated 27.03.2012 in Rajya Sabha by Ministry of P&NG was specifically referred:

“On 6^th September 2010, Reliance Industries Ltd (RIL) represented to this Ministry that they have an offer for purchase of gas at higher rate than the rate approved by the EGoM and they sought guidance and as to how to proceed as per the PSC. RIL was informed that EGoM has approved the above price for 5 years from the date of commencement of supply and RIL was instructed to comply with the price finalised by EGoM.”

Obviously, the above assurance given to parliament to stick to five years agreement i.e. till 2014 by the MoPNG cannot be overruled by PMO through review of the case by obtaining a legal opinion. Under the circumstances, re-opening the matter for legal opinion constitutes an act of omission.

I had also clearly pointed out in my letter dated 21.03.2012 that RIL’s previous record as a contractor on KGD6 gas field vis-à-vis 2600MW NTPC plants of Kawas & Gandhar in Gujarat in year 2004 cannot be ignored. In an identical fashion RIL had first agreed to supply gas @ 2.34 dollar/mbtu for 17 years and later retracted and did not sign the Gas Sale and Purchase agreement. This led to suspension of work on power plants till now.

Neither the Ministry of Power nor PMO intervened in that case to get a legal opinion so that the PSU could get the gas from KGD6. NTPC had to approach the Bombay High Court. The case is still sub judice.                                                                                  

But in the instant case, the intervention made makes the case, which was turned down by MoPNG, reopened for a review through legal opinion and RIL stands unduly advantaged, if not favoured, to the extent that  unlike NTPC, the contractor does not have to spend money and time through litigation. It has paved the way for RIL to find an alternative to stake its dubious claim for price hike of natural gas.

A further hike in the price of natural gas will lead to high power tariff for millions of consumers and more government subsidy in fertilizer. Despite that, the contractor’s bid of seeking  a review of gas price fixed by EGoM for five years at 4.2 dollar till 2014 has been allowed to be reopened after it was turned down by MoPNG. You may kindly appreciate that not considering the following facts also constitutes an act of omission in the instant case:

                          i.         RIL had quoted 2.3 dollar/mbtu to NTPC’s aforesaid plants of NTPC for 17 years.

                        ii.         In Oman, the Indian fertilizer companies KRIBHCO and IFFCO get gas from Oman India Oil Company @ 0.77 dollar/mbtu since January 2006 which has recently been increased by 15 per cent after 6 years. The tenure of gas supply agreement (GSA) between Oman Oil Company and fertilizer companies is for 15 years from January 2006 to the year 2020, while RIL is seeking review of price after 3 years!

                      iii.         As for pricing, Oman is not insisting for international price of LNG for bench-marking their indigenous gas production. It may also be noted that in Canada the domestic gas price was only 1.74 dollar/mbtu. Hence any attempt to increase the domestic gas price on the plea of international price can only be construed as a mischievous means to propel the interest of the private contractor at the cost of government exchequer and power/fertilizer consumers.

                     iv.         As on date, production from KGD6 field is 34MMSCMD as against assured 80 MMSCMD, for reasons attributable to the contractor as pointed out in CAG report on KGD6. Obviously by deliberately cutting down the production, the contractor is trying to arm-twist the government to increase the gas price.

Instead of a charade of legal opinion through Attorney General or Solicitor General, I urge upon you to kindly take following action immediately.

a)     Tariff commission should be asked to assess the actual cost of production of natural gas in KGD6.

b)    Simultaneously, the plea of RIL should be forwarded to CAG for examination.

I demand that no price hike should be allowed to M/s RIL, irrespective of legal opinion, before the expiry of contract period of 5 year i.e. before 2014 and the gas price of KGD6 be examined de novo after the report of Tariff Commission and CAG are received.