People's Democracy(Weekly Organ of the Communist Party of India (Marxist) |
Vol. XXXVII
No. 27 July 07, 2013 |
DOUBLING OF GAS PRICE
From Self-reliance to Reliance
Is the Govt's New Motto
Prabir Purkayastha
THE
Cabinet Committee on Economic Affairs (CCEA) has decided
that from March 2014,
the price of gas will double – it will rise from $4.2 per
MMBTU to $8.40! This
increase is even beyond the petroleum ministry's suggested
price of $6.67,
which was opposed by the power and the fertiliser
ministries. No explanation is
on offer on why such a steep hike has been decided except
that this is in line
with the Rangarajan Committee Report. Why the price of gas
for which Reliance
has made all the capital investments quite some time back
should be linked to
the international price of traded liquefied natural gas
(LNG) has not been made
clear by either the Rangarajan Committee or the CCEA.
Neither is it clear why
the price of gas in the ground in
The
main impact of this rise is:
·
Increase outflow in terms of
subsidies for the power and fertilisers by Rs 400,000 crore
·
Increase profits to Reliance of Rs
75,000-100,000 crore
·
Immediate doubling of LPG cost
of cylinders for subsidised and non-subsidised cylinders
·
Risk to 28,000 MW of installed
capacity of gas based plants becoming unviable
Surya
Sethi, the former principal adviser (power & energy),
Government of India
has pointed out in his article in The
Hindu, dated July 1, 2013 that nowhere in the
world is the price of
well-head gas linked to the price of liquefied natural gas.
He has also
pointed out that the spot price in the Henry Hub Terminal
today is $3.77 per
MMBTU and this is also higher than the well-head price of
gas in the
We
might remember that Reliance had committed to NTPC a price
of $2.34 per MMBTU
for 17 years initially, before reneging on this contract as
the price of gas
was raised from $1.79 to $4.20. During the Ambani brothers
fight in courts, it
had come out that the cost of gas was only $1.43 dollar per
MMBTU. An
Empowered Group of Ministers headed by
Pranab Mukherjee increased the gas price to $4.20, handing
Reliance a huge
bonanza.
This
however, was not enough for Reliance. Under the production
sharing contract
with Government of India, the government would have also got
some additional
profit petroleum due to this increase in gas price after
clearing off all the
capital costs of the project. To avoid this, Reliance
gold-plated its
investments, claimed that it would raise the
production to 80 million MMSCD from 40 million MMSCD
and syphoned off
the government's share of profit as well.
Even
this was not enough for Reliance. So the demand that the gas
price at the
well-head should be equal to that of traded LNG in the
international market. Of
course, this was given full-throated support by BP, who have
bought 24 percent stake
in Reliance Industries and want a quick return on their
investment. So after
already making a killing by gold plating their investments
in KG Basin gas
field, a further largesse by increasing the gas price by
another $4.20 has now
been given by the Manmohan Singh government.
It
might be noted that BP had decided to invest $7 billion for
24 percent share in
the KG D-6 field, at a time that the gas price was $4.20.
Clearly, this price
of gas was high enough for it to invest this huge amount.
EFFECTS OF
RAISING GAS PRICE
How
much will the people lose due to this increase in gas price?
The fertiliser and
the power ministries had computed what will be the effect of
raising gas price.
Based on their calculations, the annual increased
outflow in terms of
subsidies to the fertiliser sector
will be Rs 16,992-crore and
increase cost of fuel for the power sector will be Rs
43,360 crore for just one
year. If we take just 4 years – from 2013-2017 – the
total impact is of the
order of Rs 240,000 crore calculated only on a price of
$8.80. Since the price
will rise to $14 in this period, the total impact on the
people will be of the
order of a whopping Rs 400,000 crore!
We
had noted earlier that the distribution companies in the
power sector are
currently in the red by Rs 2 lakh crores, a position which
will worsen even
more with this hike in gas prices. 28,000 MW of gas plants
are either
commissioned or in the pipeline. All of them will become
sick with the gas
price of $8.40. Already, the finance ministry is talking of
subsidies to meet
the huge gap between the gas and coal prices for the power
sector. At one
stroke, the government has increased its potential subsidy
by more than Rs
40,000 crore per annum, if not more.
What
happens to the consumer who uses LPG for cooking? Already,
the price of
non-subsidised LPG has doubled to Rs 800 per cylinder.
Either the government
will have to increase its subsidy or the subsidised LPG will
cost Rs 800 and
the non-subsidised cylinders will cost Rs 1600 in 2013,
rising to nearly double
that over the next five years. This is truly robbing the
poor to pay the rich.
ROBBING
PEOPLE
The
government has argued that an increase in gas prices is
required to bring in
investments into the gas sector. We have been offering oil
price import parity
to all companies which are willing to invest in the oil
sector. The only
company that came in – Cairn Energy –
has now pulled out after selling its stake to
Vedanta. What makes the
government believe that gas is different from oil?
Offering
oil price parity has not helped brining in investments.
Increasing gas prices
as we did earlier, saw Reliance decreasing gas production
for further price
gouging. The simple fact is that if
The
other argument given for inviting private and foreign
capital is that the
government also receives a share of the gas or oil found
through the profit
sharing arrangement that is a part of the contract with
them. Can the
government tell us how much share the government has
actually received through
such profit sharing? When the public sector oil companies
drill and find oil,
they are milked in a number of ways. They carry the major
part of the subsidy
and their surpluses are siphoned off. When companies such as
Reliance and Cairn
Energy receive such benefits, all that happens is that their
profits increase
as do their share prices.
Every
time the government increases either the price of gas or
approves the increased
capital cost of Reliance, it has claimed that this will lead
to additional
supply of gas. This has not happened. What is the government
going to do about
this? Will it penalise Reliance for making promises which it
has not kept and
for which it has already taken out its inflated investment
costs from what
otherwise would have been the government's share?
The
CAG had pointed out that not only had Reliance cooked its
books to inflate the
capital costs in KG D-6 gas field, but it had also not
released the area which
it should have
done under the contract.
Has this been now enforced? What has happened to the
proceedings against
Reliance by the petroleum ministry, which had started under
the previous
minister?
Increasingly,
the Indian government is becoming totally captive to the
interests of global
and Indian big capital. This is most starkly shown in the
case of India's
natural resources, whether it is gas or oil fields, or other
resources such as
coal. What we are seeing is predatory capitalism which uses
the State to rob
the people. The doubling of the gas price at one stroke,
when nothing has
changed to warrant such an increase, is another example of
this mafia
capitalism. This is a mega scam whose only purpose is to
benefit one monopoly
house. India has indeed come a long way from Nehruvian
self-reliance to now
working only for Reliance.