Fbiz 12 Feb 14
Delhi's Chief Minister Arvind Kejriwal took his anti-graft campaign to new heights on Tuesday, ordering an investigation into India's richest man, Reliance Industries Chairman Mukesh Ambani, and policymakers over gas pricing. Kejriwal said Ambani's company had created an artificial shortage to "blackmail" the government to set higher prices.
"We believe that high prices are being caused by corruption," Kejriwal said. In a statement, Reliance called the allegations "baseless" and said it could take legal action.
Reliance has long maintained geological complexities have pushed production lower. The country's upstream regulator believes the company failed to drill the number of wells approved in the development plan. "The complaint and each of the allegations on the basis of which the Delhi Government has taken such action are completely baseless and devoid of any merit or substance whatsoever," Reliance said.
Reliance had agreed to supply gas to utility NTPC at about $2.3 per million British thermal units (mBtu) for about 17 years. But the price of gas from D6 was fixed at $4.2 per mBtu in 2007 when Murli Deora was oil minister, in the Congress-led government. Last year, after Veerappa Moily took over as oil minister, the government decided to move to market-linked pricing, which could double local gas prices from April 1 this year.
Arvind Kejriwal government's order for filing an FIR in the alleged manipulation of gas prices today triggered diverse reactions with Congress cautioning against a probe inspired by "political vendetta" while CPI welcomed the decision.
"Today we have instructed the anti-corruption branch to file a criminal case against Murli Deora, FIRs (investigations) against Veerappa Moily, V.K. Sibal, the (then) director general of hydrocarbons, Reliance Industries Ltd Chairman Mukesh Ambani and others," Kejriwal told the news conference yesterday.
An FIR, or first information report, is the first stage of an official investigation into a complaint. Kejriwal said he had acted after receiving four complaints. He said he would ask the federal government to suspend any order to raise gas prices until the issue was resolved.
"The wells belong to us. If Reliance and Mukesh are not producing gas in order to create an artificial scarcity, then the government should look at giving these wells to the (state-run exploration company) ONGC and some other entity which can operate them and produce gas," he said.
The D6 block was expected to contribute up to 25 percent of gas for India but its lower-than-expected output has left the energy-hungry nation more dependent on expensive, imported liquefied natural gas (LNG) to fuel power and fertiliser plants.
Here is what the papers are saying this morning:
While petroleum ministry officials have said the new gas pricing was done in line with the mandate by the Supreme Court laid down in 2010 that clearly ruled that the Union government is the owner of natural gas resources and is competent to fix its price, Firstbiz had yesterday argued that real reform is when the government frees exploration and domestic pricing. "You don't fix prices through a government and call it reform. If you fix prices, instead of letting the market determine the price, you are likely to be accused of collusion with businessmen. You have handed a propaganda coup to Kejriwal - whose remedies are unlikely to help reduce energy prices either," R Jagannathan had said yesterday. (Read the full report here)
In 2011, a probe by the petroleum regulator, Directorate General of Hydrocarbons (DGH), squarely blamed Reliance for the output drop in KG-D6 block. Hence Kejriwal's allegations that RIL deliberately reduced gas production from the field to arm-twist the government to raise gas prices is not new and has been made repeatedly. An independent analysis by consultant P Gopalakrishnan on the outputperformance of Dhirubhai-1 and 3 gas fields in the KG-D6 block confirmed that the "shortfall of gas production is due to non-drilling of adequate number of wells". In 2011 itself, Firstpost had said, "Reliance is hoarding its gas in the expectation that prices will be raised in the not-too-distant future." (Read the full report here). A ToI report this morning has again hinted that a fall in output could have forced the price hike.
According to a report in The Times of India, higher gas prices will hit consumers as power tariffs would rise since gas used for generating electricity will become more expensive. Add to that the increased monthly bill for piped gas and CNG. Critics also said that high gas prices may dampen interest in gas-fired plants which are seen as a clean source of electricity.
Meanwhile, even though the RIL stock dropped 2 percent yesterday following the FIR, analysts have played down Kejriwal's allegation as the issue of gas price has been a bone of contention between Reliance Industries and the government for a very long time now, and Reliance Industries has been maintaining that the final price or the formula of pricing of gas from KG D6 basin should be according to the production sharing contract which the government is also a party to.
"Kejriwal should answer a question - what price the gas is available in the international market. If you are buying gas at $15 and $16 per mBtu and if Indian companies are given $8 mBtu kind of per dollar price, I do not think that they have been given exorbitant hike," Deven Choksey, MD, KR Choksey Securities, told The Economic Times.
An IBN report, meanwhile, has questioned whether Kejriwal's FIR against Doera, Moily and Ambani is to push his own Lok Sabha agenda.
Also the case comes at a time when Kejriwal has been fighting a running battle with two Delhi power distributors owned by Anil Ambani to cut tariff. The distributors have pleaded their inability to do so, citing the prices of NTPC from which they source power.
"Kejriwal seems to be suggesting that the cost of power producers like NTPC will go up further if the new gas rates kick in and will have a cascading effect on consumers’ tariff," reports The Telegraph.
The report cites three reasons for Kejriwal raising the issue:
1. His firm conviction that such national issues will fetch him supporters in urban areas outside Delhi
2. By targeting RIL, he wants to push the point that when it comes to corporate corruption, neither the Congress nor the BJP are serious.
3. He is planning to generate enough heat over the next few days to make it difficult for the Congress to keep supporting him.
Then there is the question of whether Arvind Kejriwal has pushed the envelope on the jurisdiction issue by asking Delhi's anti-corruption branch to probe allegations against a Union Minister. The Delhi government said its ACB has jurisdiction in the matter because the central government's decision to double gas prices will result in non-availability of natural gas in the capital and because there is no law disallowing ACB from having a concurrent jurisdiction over all corruption charges in Delhi. According to a report in The Times of India, "the Delhi government's best bet is that jurisdiction is demarcated in CrPC only on the basis of territory. There's no statutory provision laying down that CBI has sole jurisdiction over corruption cases against public servants connected with the Centre."
With inputs from Reuters
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