Reliance Gas Price issue and it's complete story:
After the Government of India opened up hydrocarbon exploration and production to private and foreign players in 1991, Reliance Industries got the rights to explore the D6 block as per NELP (New Exploration and Licensing policy). Here, Reliance Industries discovered India’s biggest gas reserves in the Krishna Godavari basin near the Andhra coast and the site is called Dhirubhai 6 (which is where the “KG D6 basin” come from, in news related with this subject). The size of the block is 7,645 square kilometers and is officially recorded as KG-DWN-98/1.
The D6 was to produce 40 million MMSCD (Million Cubic meters per day), which was revised to 80 MMSCD. Initial development cost at $2.4 billion was revised through an “addendum” in 2006 to $5.2 billion in the first phase and $3.3 billion in the second phase.
When Reliance Industries split between Mukesh Ambani and Anil Ambani, a secret pact between the Ambani brothers became public. Anil Ambani owned RNRL (Reliance Natural Resources Ltd) claimed it had rights to gas from Reliance KG basin for 17 years at $2.34 per mmBtu (million British thermal unit). The Supreme Court finally settled the matter by asserting that ‘the government owns the gas till it reaches its ultimate consumer and parties must restrict their negotiation within the conditions of the government policy’.
The CAG Draft Report on the audit of the Production Sharing Contracts for the onshore and offshore oil and gas blocks showed that the Directorate General of Hydrocarbons (DGH) allowed Reliance Industries and other private operators to “gold-plate” the capital costs and make huge profits using an “Investment Multiplier”, which meant that higher the capital cost, the larger the share of the profits of the private parties.
Till the the capital costs are recovered, 90% of the petroleum/gas sold would be “cost” petroleum (covering Government royalty of 5%, operating costs, the costs of exploration, and the development cost of producing gas) and only 10% would be “profit” petroleum and Reliance gets the major share of the “profit” petroleum. The “Investment Multiplier” begins to increase (and thus the Government’s share) only after Reliance Industries has recovered most of its investment.
So increasing the profit share for private parties and decreasing government share was as simple as pouring in funds well beyond those stated in initial bid. Increasing capital costs helps Reliance retain a much larger share of the profits in the initial years, while the Government gets its share only in the last phase, when the production declines.
The capital costs in KG Basin D-6 Block went up from $2.4 billion in the initial contract to $8.5 billion. This is not possible without the government cronyism allowing it and there lies the KG basin gas scam. In the case of KG D9 basin, the Management Committee in which the Government had 2 nominees allowed the inflation of contracts.
Actual amount of gas available was obfuscated by digging inadequate wells, and moving directly to commercial production without intermediate appraisal.
Add to this the high price of Reliance gas — $4.2 per Million BTU (MBTU), fixed by the Empowered Group of Ministers headed by Pranab Mukherjee even when Reliance had admitted in Court that its production cost was $1.43 per MBTU and agreed to to supply gas at $2.34 to both NTPC and Anil Ambani Group, still making a profit of 50% (at this point, ONGC was supplying gas for half the price and gas production had not started in KG basin). Pranabda’s Empowered Group of Ministers let him renege on this and demand $4.2 per MBTU, because he could not now supply gas for less than the “mandated price” set by the government” (No gas was coming out of the KG Basin still). Ministers may be “Empowered”, but on behalf of whom were they acting?
So Reliance profits from every side
- By over invoicing the capital costs paid to own affiliates without oversight, it makes substantial profits directly
- By inflating project cost, it continues to get a larger share of profits for an additional time till the “investments” from are recovered.
- Selling gas at multiple times the real cost (of which it retains a major chunk as “recovering investment”
Who were involved?
Anti-Corruption Bureau (ACB) filed an FIR against Petroleum Minister Veerappa Moily, Reliance Industries chairman Mukesh Ambani, former minister Murli Deora and ex director-general hydrocarbons VK Sibal under the Prevention of Corruption Act for allegedly hatching a conspiracy to manipulate gas prices.
However, CPI Leader Mr. Gurudas Dasgupta warns that “If this proposal is accepted, then the country will have to bear an additional subsidy burden of `76,000 crore. This is a huge scam that is in the process of being enacted in assistance with the petroleum ministry.
In the present scenario of high inflation and slowdown in economy, an increase in gas prices will result in huge increases in the prices of fertilizer and power tariff which, in turn, would derail the economy and hit the common man severely.
Natural gas prices are falling all over the world but are being hiked in our country to benefit an industrial house. I wrote two letters to prime minister Manmohan Singh in this regard but he has not responded. Of late, the prime minister has been maintaining silence on all issues of national interest, specially when it comes to involvement of corporate bodies in scams.
Besides, Singapore High Commission had dispatched to the UPA government accusing Reliance group of companies of money-laundering to the tune of Rs 6,530 crores.
Exposing the cobweb of suspicious companies, the Singapore High Commission had stated that Rs 6,530 crores have come into India from Biometric Marketing Ltd, a one-room company in Singapore that does not do any business. It was pointed out that this is a company with no assets, no equity and does not file an income tax returns in Singapore claiming to be a small company. Yet, the company contributed Rs 6,530 crores which is the single biggest FDI into the country from Singapore.
The High Commission had stated that all this money has gone to Reliance group of companies in India with the major chunk ( Rs 3,128 crore) going to Reliance Gas Transportation Infrastructure Ltd which is a company 100 per cent owned by Mukesh. Other three Reliance companies which received investments were Reliance Infrastructures, Reliance Ports and Reliance Utilities.
The investments were done over a period of one year starting from 2007. The High Commission also found in its investigation that major share holder of the BiometriX even did not exist on the address it had given.
Reliance Power scam:
The Comptroller and Auditor General has alleged that the union power ministry gave “undue benefit” of Rs 1.20 lakh crore — calculated over the next 25 years — to Reliance Power Ltd (RPL) in the ultra mega power projects (UMPPs) at Sasan in Madhya Pradesh and Tilaiya in Jharkhand. The undue benefit was extended by the UPA government by changing coal licence norms to allow RPL to divert this surplus coal to its other power projects.
The scam resulted in a benefit over 25 years to RPL of Rs 42,009 crore from the Sasan project and Rs 78,078 crore from the Tilaiya project. The CAG says that the allocation of the captive coalmine was one of the key features of UMPPs (plant capacity above 4000 MW) and initial bid documents did not contain the provision of diverting excess coal to other projects. Records show that this condition was reflected in the contract which RPL signed in September 2007 for the Sasan project.
The matter was examined and discussed in detail by EGoM and it was agreed that for expeditious implementation of coal-based thermal power projects, which would also increase the generation capacity of the country, and for optimal utilization of coal reserves in the blocks allotted to UMPPs, incremental coal may be permitted to be used by other projects of the same developer of the UMPP subject to necessary safeguards
People involved
- Sushil Kumar Shinde, Minister of Power
- Reliance ADAG
Sources from : vidyut from aam janta, zeenews, and new indian express
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