It is to bring on record, to put on the public domain, to inform the nation, the community at large, the shameful conspiracy that was hatched and carried out by the people in high position abusing their power, to benefit the biggest corporate house of the country allowing it to loot the national resources, reaping fabulous profit while producing natural gas, a national asset at KG 6 Basin, off the coast of Andhra Pradesh.
In the name of implementing Rangarajan Committee recommendation, a committee that had hardly any expertise in natural gas production and complex technicalities associated with it, a fraud was played. The price of natural gas, so valuable for the production of power and fertilizer, to speak the least, has been permitted to be raised from the current price of 4.2 dollar per unit, MMBTU to 8.4 dollar per unit to be effective from April next year. a
The main users of natural gas are fertilizer and power industry. The Ministry of Power and the Ministry of Fertilizers openly opposed the price hike, recorded their dissenting voice in all the Cabinet notes circulated for inter-ministerial consultation.
According to the Ministry of Fertilizer, the price rise of natural gas as suggested by Rangarajan Committee will result in the need for additional subsidy of Rs.10,000crores per annum if the production of urea is maintained at the present level. It cannot be denied that the country is having a shortage of urea at the moment. If the production of urea is planned to be augmented, the volume of subsidy will have to be proportionately increased. The point in question, given the present economic condition and considering the criticality of the crisis, whether the Government of Dr. Manmohan Singh will at all be in a position to provide the additional subsidy to meet the additional liability. If it is not, the burden of price hike of natural gas will have to be automatically passed on to the farmers having disastrous consequences.
Naturally, same is the reaction of the Power Ministry. According to the Department, a price above 8 dollar per unit shall push up the cost per unit to Rs.6.40. It is considered view of the Power Ministry that such a price hike shall make the industry totally unviable, turning the entire gas based power plants into non-performing assets leading to their complete shutdown.
When the country is facing deep power crisis, such a massive shortfall arising out of shutdown of gas based power generating industry will play havoc for the country. If the impact of price increase is calculated basing on the operating power plants, it translates into Rs.28,000crores per annum. If the projection of the Power Ministry is carried forward considering the capacity under construction, the impact shall be astronomical, as high as Rs.46,000crores per annum. The subsidy for the power industry, unlike fertilizer will have to be borne by the State Governments. It is a common knowledge that the State Governments with their pitiable resource mobilization can hardly bear the huge escalated cost.
The mischief that has been committed by the so called expert committee is vividly clear. When calculating price for the natural gas, it failed to take into account the actual cost of production. Price of a commodity can never be calculated keeping it totally unrelated with cost element. It is difficult to realize how a committee headed by an eminent economist like Rangarajan had arbitrarily made a recommendation, divorced from reality. Maybe, the committee had a predetermined agenda. What Prof. Rangarajan did was to look into the different price levels of natural gas at different hubs in the world. While making the report, Prof. Rangarajan himself admits that there is no organized international market for natural gas having a comparable price level. Therefore, if the price differential exists in different parts of the world, what could be the scientific basis for coming to suggesting a price of 8.4 dollar per unit, double of the current price level? Not only the price calculation was arbitrary, the economic fallout in a situation of deep economic crisis was not considered. Therefore, the inescapable conclusion is that the committee was more interested to provide the RIL, the contractor, a hefty profit margin. The other crucial question that Prof. Rangarajan must clarify is why the price calculation was done in terms of dollars. It is domestic production, by a domestic contractor, not meant for export and to use for domestic consumption, but it is priced in terms of American currency. It is not only a lapse most serious, it has enabled the contractor to reap the extraordinary margins due to decline in the value of rupee against dollar.
Unfortunately, Prof. Rangarajan Committee has been totally unfaithful to the national interest. It had ignored the vital variables. It did not consider the cost of production. It failed to realize the disastrous consequences to the economy. It preferred a foreign currency to determine the price increase. That is why the conclusion is that the Committee had a predetermined agenda as the political masters had set for it. If Prof. Rangarajan Committee had been a visible player in the game of collusion, there are invisible forces who had worked tirelessly to give benefit to the corporate house. Prof. Rangarajan is not the only wrongdoer; there have been other wrongdoers too, equally to be blamed, if not more.
The leading characters who had been involved in the nefarious fraud inflicted on the nation are the Ministry of Petroleum, Ministry of Finance and even the Planning Commission. All had gone much beyond what Rangarajan Committee had suggested to promote the interest of the Reliance Industries.
The devil’s argument for price hike higher than Rangarajan Committee was cynically based on the fallacious theory: higher is the incentive, more is the investment. The obsolete theory of incentivizing investment was used as a convenient tool to carry out the whole design. But the history of economic development of the world suggests that investment flows in, domestic and foreign, when the potential of profitability is high, market is moving up and signs of revival are clear. The government had relied upon a dangerous proposition to justify its reckless concession to the corporate totally undermining the national interest.
When the Planning Commission was closely questioned in a Parliamentary Committee on its role, the Secretary admitted candidly that the Commission before making the suggestion on the pricing of the natural gas had not studied at all its impact of the price rise on economy. Deplorably, the Commission also batted for the corporate without performing its statutory obligation of taking into account the nation’s interest. Most unashamed was the reply of the Finance Ministry. It conceded that it had not considered the cost of production before making its judgment on the pricing process.
The Petroleum Ministry under the stewardship of Mr. M VeerapaMoily was in fact hand in gloves with the biggest corporate house of the country. It worked for a higher price to enable the corporate house to make additional fabulous profit. The pricing the Petroleum Ministry had suggested was in fact near to with the price the RIL had demanded. Mr. Moily had faithfully carried out the mandate as was given to him while he had replaced Mr. S. Jaipal Reddy. He repeatedly overruled the officers of the Petroleum Ministry to recommend a price higher than the Rangarajan Committee.
If the new pricing formula is to be effective from April 2014, why was the Cabinet in such a hurry? On such a crucial issue when the Government was divided, with the Ministry of Power and Ministry of Fertilizer stubbornly opposing, and even senior bureaucrats in the Ministry of Petroleum not agreeing with the opinion of the Minister, why no due diligence was done through the normal mechanism followed in the government administration? Why a group of Ministers was not appointed, why the other vital stakeholder,the State governments were not consulted, why a committee under Rangarajan was constituted that did not include experts on the subject? It is clear the government succumbed to the arm-twisting tactics of the Reliance Industry.
It is a free for all, an open collusion and conspiracy to benefit the biggest corporate of the country, on the eve of the election in 2014. The highest political investor, the corporate that lavishly doles out the fund to finance the political hierarchy across the political spectrum of the country, is blessed with patronage, expecting a return gift from its political patrons. The unusual hurry in pushing through the deal to be effective as far as in April 2014 raises obviously doubts on the credibility of the decision. In fact, the government had surrendered to the illegal maneuver of the RIL, known for its illicit business culture. The rejection of the first request of the RIL for increase of price surprisingly coincides with the fall of production of natural gas, precipitating deep suspicion that the fall was calculated to coerce the government to agree to the rise of price of natural gas. A careful analysis of sequence of events clearly suggests that it has succeeded in blackmailing the government.
A number of features of the classical episode of blackmail is clearly discernable.
The total shortfall in the production of natural gas in KG D6 in three years, 2010-11, 2011-12 and 2012-13 translates into a massive loss of Rs.1,13,000crores to the nation. Reliance has not been penalized for the criminality. Even the process of arbitration had been terminated by the Minister personally. Mr. Moily after he had taken over from Mr. Jaipal Reddy had on record declared that he is for negotiated settlement, not arbitration. Mr. Moily wants to negotiate with the corporate that has deliberately caused a huge loss to the country and forego its right to impose penalty of billions of dollars.
Not only RIL had violated the contract it had entered into with the Government in 2000 with regard to the target of production on yearly basis, it has also refused to relinquish a large part of the area it had left unused, unexplored. The huge unutilized area that remains in its possession, if surrendered to the government, could have been the subject of subsequent international bids for exploration. Even on the question of vacation, Mr. Moily played soft. Publicly airing his views, he says, he is not to be guided by technicalities in this matter.
It is no surprise, therefore, that the Union Cabinet decided to implement the Rangarajan formula on natural gas in face of opposition of four members of the Cabinet. The government did not really take into account the deep distressing effect on the economy as a whole, particularly on the production of power and fertilizer.
While RIL would reap fabulous super profit of the order of Rs.81,000 crores over a five years period, the increased subsidy burden shall shoot up to Rs.2,20,000 crores during the same period. The implementation of Rangarajan formula, increase of price of natural gas from 4.2 dollar to 8.4 dollar, will mean large increase in the power and fertilizer cost, the unit cost of power will rise by Rs.2 per unit, fertilizer per metric tonne will increase by Rs. 6,000.
What is most intriguing is that the Cabinet has approved the Rangrajan formula but did not look into the question of substantial increase of subsidy arising out of increase of price of fertilizer and power. In the present scenario of economic crisis it appears the burden of such heavy liability is beyond the means of the government. In that case farmers will dip into further deep crisis due to the hike of fertilizer prices; the common consumer of power generated from natural gas will face a steep rise in tariff. While the question of additional subsidy was raised, the Minister of Finance dubiously stated that at the moment the government was deciding to increase the price of natural gas and the question of subsidy will be considered later on. The point in question is how the Government could have decided price rise without considering the question of additional subsidy. It is a calculated move to dupe the public opinion, leaving the question of subsidy open while taking the firm decision on price rise to benefit the biggest corporate of the country.
The country is in a critical crisis. The economic growth is dipping. Industrial production is on the decline. Investment is on the fall, saving is down. Agricultural production is faltering. The country is facing an unprecedented economic stagnation. Most surprisingly on the other hand, price is hitting the sky, of course, it is retail price, wholesale prices do not have any connection to the consumers buying capacity. The corporates while attending a meeting on the invitation of the Prime Minister had categorically declared if the market remains the same as it is today, employment will be seriously impacted. Retrenchment and wage cut is on the cards. No question of absorption of additional young working force. Many of those who are in job will be shown the door. The reckless doling out of concessions to the corporates, domestic and foreign, has not yielded results. Inflow of investment, domestic or foreign, depends on profit potential, not on the concession. Nowhere in the world the sagging morale of the market can be restored by foreign funds, it essentially depends on the utilization of national resources, augmenting domestic investment particularly by the government. In such a situation, government has opted for a crucial decision on the increase of gas price which will further accentuate the downturn of the economy at the peril of the nation.
Only a popular intervention of the masses, united will of the working people, by all sections of the democratic social forces can force the government to retreat.