The Communist Party of India (Marxist) on Friday said the draft CAG report on the production-sharing contracts for the KG basin gas was only the “tip of the iceberg” and that it had already “exposed the nexus between the UPA government and Reliance Industries.”

The CPI(M) demanded immediate action against the former Director-General of Hydrocarbons (DGH) and other officials who allegedly colluded in the sordid affair, causing loss to the government and unduly benefiting Reliance Industries. The party also demanded an immediate amendment of the present pricing formula in the Production Sharing Contract (PSC) in consultation with the CAG.

“Besides revenue loss to the government due to goldplating, the hike in gas price in favour of M/s RIL in September 2007 has implications in terms of increased power tariff and higher fertilizer subsidy,” the CPI(M) said in a statement here. The CAG draft report also vindicated the stand taken by the party in Parliament since December 2006.

“When a question on the status of gas availability, output, capital expenditure, etc, was first raised in the Rajya Sabha on December 12, 2006 by CPI(M) MPs Tapan Sen and the late Chittabrata Majumdar, the government informed [them] that M/s. RIL-Niko consortium had submitted a development plan which envisages increase in production from 40 to 80 MMSCMD and increase in expenditure from $2.47 billion to $8.84 billion,” the party recalled.

“It was immediately pointed out in a letter by Mr. Sen to Minister for Petroleum and Natural Gas on 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. It was followed up with three letters on the same lines on January 25, 2007, February 27, 2007 and March 12, 2007, following which the Minister concerned responded that the matter was being examined.”

On April 30, 2007 a letter was sent to the Petroleum and Natural Gas Minister, with a copy to the Prime Minister, in view of the impact of goldplating (artificial increase in cost) on the price of natural gas, a major input for power and fertilizer. However, on May 15, 2007, in reply to a question in Parliament, it was informed that the revised capital investment had been approved by the DGH, the CPI(M) pointed out.

Three more letters were sent to the Prime Minister directly seeking his intervention to stop goldplating and ensure that the price of natural gas was not abruptly increased. “One letter was acknowledged but no action was taken. Subsequently, the price of natural gas for consumers was also fixed at 4.2 dollar/unit by EGoM in September 2007 in favour of RIL, overlooking its earlier offer of 2.34 dollar/unit for the same to M/s. NTPC,” the party said.

The CPI(M) sought action against the former DGH in letters written in August and October 2009 to the Minister for Petroleum and Natural Gas. However, though the CBI had sought a full probe against the DGH, no action was taken so far, the statement said.

The CPI(M) demanded that Prime Minister Manmohan Singh further clarify why the pricing exercise undertaken by the government took into consideration only the price of 4.2 dollar/unit offered by RIL and ignored the price offered by the same RIL to the NTPC which was much lower; why the government ignored the NTPC/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 an increase in the price of power with a multiplier effect fuelling inflation.”

The party wanted gas price immediately delinked from the international dollar price of crude. “The price of the KG basin gas should be revised on the basis of the actual cost of production and a cost-plus formula.”

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