NATURAL GAS FROM KRISHNA GODAVARI (KG) BASIN

Who is the Owner?

Dipankar Mukherjee

IN normal circumstances in the pre-reform or pre-globalisation era, such a question would not have arisen at all in India. By virtue of Article 297 of the Constitution of India, all petroleum reserves, including gas reserves in their natural state in the territorial waters or the continental shelf or the exclusive economic zone of India vest in the Union of India and are held for the purposes of the Union. The government is therefore the sovereign owner of KG basin gas for distribution of gas for public good viz fertilizer production, power generation, transport, industry, domestic use etc. That being the case, why does the government of India – after 59 years of the adoption of our Constitution – need to reassert its ownership of KG gas today in July 2009? Has its sovereign ownership been challenged by any foreign country? No. In an affidavit filed in the Supreme Court on July 18, 2009, the sovereign Bharat sarkar pleads that by a privately negotiated settlement vide an MoU dated June 18, 2005 between CMD, Reliance Industries Limited (RIL) and CMD, Reliance Natural Resources Limited (RNRL), KG basin gas, whose ownership vests with Union of India, has been used as private property. Bharat sarkar now pleads the court to annul the MoU.

So, four years after the MoU, the government of India wakes up from its ‘kumbhakarna’ slumber to complain that its property worth thousands of crores of rupees has been usurped by the two brothers –– a property which is a major energy source for electricity and fertilizer to a gas-starved country. What was it doing all this time? The whole nation was agitated when Pakistani intruders sneaked into Kargil without the knowledge of the Vajpayee government ten years back. The intruders stealthily captured about 150 sq km of Indian land in the inhospitable hilly terrain and they were subsequently thrown out by the Indian armed forces. Here, in this case, in broad daylight in the name of a production sharing contract, an Indian industrial house openly treats 339 sq km in KG basin like its family property for four years and yet the sovereign government of India is helpless! Instead of asserting its rights years back, it is now moving from one court to another pleading for its right to intervene. And why is it playing the role of a mediator rather than an owner? To find out the reason for such abject surrender to the corporate might, one has to look at the background.

THE

BACKGROUND

Before economic reforms were initiated in the early nineties, ONGC and Oil India Ltd were the only gas exploration and production companies, owned by the government of India. The distribution and marketing of gas was being carried out by the Gas Authority of India Ltd (GAIL), another PSU formed in 1984 with the specific task of forming a national gas grid for gas distribution in the country to ensure regional balance. As a part of reform process, the government decided to invite private investment for exploration and production of oil and gas. New Exploration and Licensing Policy (NELP) was notified in 1999 to award oil/gas blocks to private companies as contractors. In this process a Production Sharing Contract (PSC) was executed in April 2000 between the government of India and undivided RIL and its minor (10 per cent) partner NIKO Resources Limited for production of gas in an area of 339.41 square kilometer in KG basin (D6 field). After the dispute between the two siblings, Reliance Industries Ltd (RIL) was demerged into two companies viz RIL and Reliance Natural Resources Ltd (RNRL), which went to the younger sibling. The MoU of June 2005, which the government of India is now asking to be nullified, stipulated that the gas produced from KG basin as per PSC will be utilised as follows:

· Quantity of 12 million metric standard cubic metres of gas per day (mmscmd) will be given to NTPC

· The next 28 mmscmd would go to RNRL

· The rest will be supplied in 60:40 ratio with 60 per cent to RIL and 40 per cent to RNRL

· The pricing of the gas was stipulated at 2.34 dollar/mmbtu (million British thermal unit)

The above MoU inter alia ignored the sovereign ownership of the government over KG gas on two major parameters viz allocation of gas and the pricing of the same. The government now admits in its Special Leave Petition (SLP) before the Supreme Court in its affidavit in July 2009 that rights of Union of India have been infringed for the following reasons:

· That RIL and RNRL cannot settle between themselves as to how the gas, which is a national asset and a natural resource that vests in the government of India and which is to be utilized for the wider and larger interest of the nation, is to be distributed. It is not the private property of RIL and RNRL and any understanding arrived at between them is not binding upon the government of India.

· The gas has to be distributed in terms of the government-approved Gas Utilisation Policy and at a price approved by the government.

But then why, after four years?

HIDE & SEEK GAME

BY THE UPA GOVT

The government now says that it became aware of the MoU only after the relevant portion of the MoU was placed before the Mumbai High Court in October 2008 in course of the litigation between the brothers.

It is absolutely untrue. On April 14, 2006 RIL approached the Ministry of Petroleum & Natural Gas (MOPNG) seeking the approval of the sale of gas to RNRL at 2.34 dollar/mmbtu and RNRL sent a letter on the same subject to the government on May 09, 2006. In between, on May 04, 2006 the then CPI(M) MP, late Chittabrata Majumdar sought the intervention of the minister of petroleum and natural gas in the matter. The relevant extract of the letter is quoted here:

“I understand RIL has recently signed a Gas Sale Purchase Agreement (GSPA) with Reliance Natural Resources Ltd (RNRL) without any bidding or competitive arms length process, to supply gas at a contracted price of 2.34 dollar per mmbtu whereas currently India imports gas from Qatar at an estimated price of 6 dollar/mmbtu. RIL by this agreement with RNRL is going to supply gas cheaply, that too as large a quantity as 40 mmscmd (current total domestic gas availably for customers in the country is 72 mmscmd). RIL is, therefore, seeking to transfer the benefit of gas find to a related private company at a cheaper price…..This benefit should actually flow to the people by virtue of Article 297 of the Constitution of India as per which petroleum in its natural state is vested in the Union of India. The government grants the exploration license in overall interest of the country.”

“I, therefore, request you to kindly intervene so that natural gas from KG basin explored by RIL, is auctioned through competitive bidding and the government can utilise the gas-find through GAIL which can set up its own pipeline for transportation and consumption of gas in power and industrial sector as a part of overall energy security and regional balance.”

The letter was acknowledged on May 25, 2006.

The government was therefore never in dark when the KG basin gas became all of a sudden a family affair. In fact, the government has both overtly and covertly encouraged a settlement between the squabbling siblings at the cost of surrendering its ownership right on the natural gas. Otherwise, it would have intervened on behalf of NTPC, the government-owned power generation company whose 2700 MW gas based thermal projects (Kawas and Gandhar) are kept on hold because of RIL’s refusal to supply them the required gas. That is another part of the hide and seek game being indulged by the UPA government.

NTPC-RIL CASE:

GOVT’S DECEIT

The government of India so far has been more concerned about the pricing of gas than about asserting its ownership rights on the same. Why? Because, gas pricing of 2.32 dollar/mmbtu in the June 2005 MoU, signed between the two siblings, was based on the gas price offered by RIL and accepted by NTPC in June 2004. In a written reply to a question dated February 20, 2009 in Lok Sabha the then minister of state for power, Jairam Ramesh stated:

“NTPC invited bids under international competitive bidding for procurement of natural gas amounting to 132 trillion British thermal units per annum for Kawas-II and Gandhar-II power projects for a period of 17 years. Reliance Industries was evaluated as the lowest techno commercially acceptable bidder and NTPC accepted its offer. Accordingly a Letter of Intent (LOI) was issued to RIL on June 16, 2004 which was duly acknowledged and confirmed by RIL.”

RIL’s bid was for supply of 12 mmscmd of gas from KG basin at 2.34 dollar/mmbtu to NTPC for 17 years. What happened thereafter? This is what Jairam Ramesh explained in the aforesaid reply in parliament:

“After the issuance of LOI, RIL did not come forward to sign the Gas Sale and Purchase Agreement (GSPA) and sought major changes in the agreed draft of GSPA. NTPC pursued with RIL at various levels and various meetings to sign the GSPA, as per the draft accepted by RIL during the bidding process. However inspite of all the efforts by NTPC, RIL did not sign the GSPA agreed during the bidding process.”

At various levels? Which level? Did the MOPNG, as a nodal ministry of the government that now asserts its ownership on KG basin, intervene and ask the contractor i.e. RIL to supply gas to the government-owned company as per the agreed terms so that 2700 MW of power is made available by NTPC to the people of this country? No. Instead, an aggrieved NTPC filed a suit in the Bombay High Court on December 20, 2005 against RIL’s refusal to sign the GSPA. The case is still sub judice and 2700 MW power – much cheaper than the much tom-tommed nuclear power – remains elusive.

In the litigation between RIL and RNRL, earlier in Bombay High Court and now in the Supreme Court, the government of India rushes to act as a mediator. This alacrity is glaringly absent on the part of the government in the litigation between its own company NTPC and RIL, which involves providing power to the aam admi. The UPA government was eloquently silent and did not support the NTPC even for once during the last four years. On the contrary, in one of the rarest case of deceit and deception, it weakened the case of NTPC by forming an Empowered Group of Ministers on September 12, 2007, which fixed the gas price at 4.2. dollar/mmbtu –- an arbitrarily determined high price that RIL had been bargaining for all along.

If this is the price of gas approved by the government, where does NTPC’s case stand? By indirectly sabotaging the NTPC’s case, the government has at one stroke hiked the price of power and fertiliser – both key inputs in the grim agrarian sector. The public sector company, ONGC, presently supplies gas to NTPC, another PSU, at 1.8 dollar/mmbtu. The neo-Congress leaders of UPA government, who relentlessly chant the mantra of “people’s ownership” to justify their disinvestment, want the same gas owned by the people of this country to be contracted to a private family by the government who would then extract 2¹/₂ times more price at people’s expense!

REAL PEOPLE’S

OWNERSHIP

Clearly, it is high time the government must come clean on this issue. Now it has belatedly but rightly asserted that KG basin gas is government’s property. Better late than never. Let them act on what they have asserted i.e. people’s ownership of KG basin gas which does not belong to a family – divided or undivided. The first follow up step to act on people’s ownership is to take over the distribution and marketing rights of gas at the delivery end from RIL which has violated the PSC by unilaterally assigning to itself the power of an owner. The next step is to entrust Gas Authority of India Limited (GAIL) with the responsibility of transportation, distribution and marketing of KG basin gas. This will be in line with para 2.4 of the union cabinet note for formation of GAIL in January 1984 which stated “In the course of time, it is visualised that national grid of gas pipeline will have to be developed, having regard to gas availability, utilisation pattern and the capital investment involved.” The idea was clear – ONGC, OIL and GAIL, owned by people of India, will produce and distribute natural gas, a major energy source to ensure regional balance and allocation to priority sectors. The UPA government has abandoned that path. “People’s ownership” does not mean selling of PSU shares in share market. It means assertion of State control of vital natural resources like gas, owned by the people of this country and not by one corporate or other, in the interest of aam admi.