Gas dispute: Govt's duty is to protect national interest

Gas dispute: Govt's duty is to protect national interest

With contradictory stands taken by different ministries of the same government, it has all the trappings of emerging as “the scam of the century”.

Strictly, the issue is not complex at all. Only the government has to take a firm stand and implement meticulously the terms of Production Sharing Contract (PSC) it has signed with Mukesh Ambani’s RIL.

In the normal course of resolving disputes involving PSCs, there are regulatory bodies. In the current instance, it is the Directorate General of Hydrocarbons which is saddled with the responsibility of monitoring them and protecting the national interest. By keeping quiet until the controversy reached the supreme court, it has shown its incompetence, if not acquiescence.

Unfortunately, the power and the petroleum ministries seem to be taking contradictory positions. The leading political parties are adding to the complication by implicitly pitting one brother against the other to the detriment of national interest.

Not to be left out, the solicitor general — if there is any truth to the leaked information about his advice to the government — has favoured an out-of-court settlement, brokered by the government, as it cannot afford to contradict its position in another matter involving, the state-owned NTPC.

Since NTPC is able to pass on benefits of the market-based reasonable costs to its customers, the government should weigh the overall benefits to the nation of getting the arms-length price for the precious national asset of KG basin gas reserves.

According to the article 21 of the PSC, the government has the right to force the contractors to sell gas in accordance with the priorities set by it. The same article also obliges the producer to sell gas at arms-length price to be approved by the government.

According to the private partition deal, Mukesh Ambani’s RIL has to sell gas at a fixed price of $2.34 per million British thermal unit (mmbtu) for 17 years to Anil Ambani’s RNRL.

So far as RNRL uses it for power production, government should have no problem. But regarding the price of $2.34 per mmbtu, the government cannot accept it since it is not an arms-length price. Just like the NTPC, Anil Ambani can also pass on any additional costs while producing power, provided he is sincere in using all the gas only for that purpose.

No need for a compromise
It is erroneous on the part of the government counsel to recommend private settlement.

PSC gives all legal rights to the government to support its argument while the general counsel seems to be implying that the government has a weak case. There is no need for the government to compromise with the brothers unless there are some sweetheart deals in the PSC that the public still does not know. If the brothers have a problem based on their partition formula, the government need not worry about it and allow the court to settle it. To facilitate their negotiation, the government need not soften its principled stand of not accepting a fixed low price for 17 years.

In fact, even the price fixed by the government of $4.2 per mmbtu for KG basin seems to be low in comparison to the imported price of LNG. When it is well known that gas prices fluctuate with international oil prices, it is not prudent to fix gas prices. It should have been tied to oil price which is equitable to both producers and consumers.

Why has the government formed a committee to look at the pricing issue at this juncture? There have been several committees which have studied the gas pricing issue and made recommendations. The government is strongly considering liberalisation of oil market based on its failure to administer prices during the last five years. Rangarajan and Chaturvedi committees have also strongly recommended to the government to allow the market to dictate oil prices. It should adapt a similar policy with respect to gas pricing.

The latest pricing suggestion of pooling all gas prices partly influenced by KG basin gas pricing dispute and selling gas on cost basis will create all kinds of problems based on the experience of several countries. It will give rise to license-permit-quota raj in the gas sector — a system already dismantled in general economy.

The government has also set a panel of group of ministers (finance, petroleum, power, and law) to decide on the government stand in the Ambani brothers’ dispute. Do we need such a committee and convert what is purely a legal issue into a political problem?
Do we need a political team to interpret a negotiated contract? Is this the result of the solicitor general’s erroneous and illogical suggestion for a private settlement?

It is high time the government distanced itself from this dispute and allowed the energy experts, energy lawyers with the knowledge of PSC and competent officials from DGH to prepare a strong case to argue in the Supreme Court to protect public interest.

(The writer is an energy expert)

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