Minister has been resisting Mukesh Ambani on gas prices, audit
S. Jaipal Reddy — the minister who took on Mukesh Ambani in a regulatory battle on gas prices that saved the exchequer thousands of crores of rupees — is set to be divested of the crucial Petroleum and Natural Gas portfolio, The Hindu has learnt.
Mr. Reddy, who took over from Murli Deora in January 2011, resisted and then rolled back the influence of Mr. Ambani’s Reliance Industries Ltd. on the Ministry. On his watch, RIL’s high-pressure campaign to revise the price of natural gas upwards was blocked. He also questioned the steep decline in gas production from the company’s once prolific KG D6 gas block off the Andhra coast and brought RIL under the scrutiny of the Comptroller and Auditor- General.
Against the backdrop of rising global gas prices, RIL has been demanding that it be paid more for the natural gas it produces from the KG basin. But with the price of domestic gas — as set by the Empowered Group of Ministers (EGoM) in 2010 — not due for revision till April 2014, Mr. Reddy said no. He also ordered scrutiny of the expenditure the company claimed to have incurred in bringing KG D6 into production. The result: RIL was disallowed a $1.46-billion expenditure for its failure to maintain the gas output from its KG basin facility. RIL has blamed the sharp drop in output from the 53-54 million metric standard cubic meters per day (mmscmd) achieved in March 2010 to almost 27.5 mmscmd on production difficulties related to the structure of the gas field but Ministry officials harbour doubts.
They say that during 2011-12, RIL’s output should have averaged around 70 mmscmd. Instead, it stood at 42 mmscmd, causing a direct loss of Rs. 20,000 crore to the exchequer. During 2012-13, production stands at 25 mmscmd instead of the projected 80 mmscmd, leading to a loss of around Rs. 45,000 crore to the exchequer. “Every 1 mmscmd drop in production of gas means a loss of 210 MW of power capacity. Power plants in various parts of the country to the capacity of nearly 20,000 MW with bank guarantees of around Rs. 30,000 crore are lying idle without gas. Fertilizer was being imported more than anticipated due to the fall in gas output from the KG basin. This is a huge loss to the nation, and who knows if gas production was being suppressed for want of revised price,” a senior official told The Hindu.
As Mr. Ambani pressed his case on Raisina Hill, the demand to revise gas prices upwards even before the April 2014 deadline soon started coming from other Ministers and also the Prime Minister’s Office (PMO). “There was strong pressure within the EGoM to revise the price. The matter was referred to the Attorney-General. The AG said it was a matter of policy and not law but the April 2014 deadline for price revision was still valid. The PMO was all the time putting pressure on the Petroleum Ministry to work out a solution to allow RIL a revised price. But Mr. Reddy resisted on the grounds that it would cause a loss of $6.3 billion to the exchequer and put a huge burden on the common man, the farmers and the fertilizer industry in the shape of a sharp hike in the price of power and fertilizers,” the official said.
RIL was also upset at being forced to agree to an audit of the KG D6 gas field by the CAG. The company had insisted that it was a private entity and couldn’t be audited. However, Mr. Reddy and his team of officials maintained that they were well within their rights under section 1.9 of the production sharing contract to seek a second audit and that RIL would have to submit itself to CAG scrutiny or face non-approval of its field development plans and expenditure.
In 2006, Mani Shankar Aiyar was ousted unceremoniously from the Ministry amid rumours that the Congress wanted a more “industry friendly” minister in the key portfolio.