KG basin cronyism

The most powerful man in the country (which the Prime Minister is supposed to be) and India’s richest man (Mukesh Ambani) could not have played their cards in a worse manner.

The way in which Dr Manmohan Singh shunted Sudini Jaipal Reddy from the ministry of petroleum and natural gas to the ministry of science and technology conveyed a distinct impression that he had been “kicked upstairs” because the ministry he headed was at loggerheads with Reliance Industries Limited led by the country’s richest man. In the process, the government shot itself in the foot and, instead of promoting Mr Ambani’s interests, ended up hurting these.
Given the hue and cry that has been raised, the new petroleum minister M. Veerappa Moily will now find it extremely difficult to accede to RIL’s demands for a higher administered price of gas extracted from the Krishna-Godavari (KG) basin in the Bay of Bengal off the eastern coast of India. RIL will also find it rather tough to wriggle out of a situation in which not only its financial accounts but its performance as well will continue to be critically scrutinised by the Comptroller and Auditor-General of India, a constitutional authority answerable not to the government but to Parliament.
What is worse for the Prime Minister and Mr Ambani is that the set of controversies surrounding the implementation of the production sharing contract between the government and RIL and the fall in gas output have been converted into a high-profile public debate on the issue of crony capitalism by the India Against Corruption movement led by Arvind Kejriwal and Prashant Bhushan. The political rhetoric has escalated to a high pitch. Is this country being run by Manmohan Singh or Mukesh Ambani, asked Mr Kejriwal. The alleged favours bestowed on the country’s biggest privately owned corporate entity by the government have today gone way beyond esoteric discourse that was confined to so-called knowledgeable experts among the chattering classes and the pages of English newspapers, in particular financial dailies.
After Robert Vadra, son-in-law of the first family, and Nitin Gadkari, president of the Bharatiya Janata Party, the guns have been trained on Mr Ambani and the Prime Minister. But the government has none to blame but itself for this self-goal. It needs reiteration that there was absolutely nothing about the KG gas controversy that was not already in the public domain, well before Mr Kejriwal and Mr Bhushan launched their tirade. The recorded conversation between Niira Radia and Ranjan Bhattacharya, foster son-in-law of former Prime Minister Atal Behari Vajpayee, in which Mr Ambani reportedly said to Mr Bhattacharya that the Congress Party was metaphorically in his pocket, had been played out many times.
The CAG had categorically pointed out that the contract that had been signed between RIL and the petroleum ministry was heavily loaded in favour of the former and against the exchequer. The CAG had also claimed that it suspected RIL of “gold-plating” or deliberately inflating capital expenditure to increase its profits and lowering revenues accruing to the government. It pointed out infirmities and anomalies in the manner in which the company had awarded contracts in an opaque manner, even as RIL staunchly opposed submitting all its records for scrutiny claiming the CAG did not have the necessary authority.
Under former petroleum minister Murli Deora, RIL had it rather good even as its critics claimed that the deal was causing huge losses to the country. Many revelations were made in the wake of a bruising sibling rivalry between Mukesh Ambani and his younger brother, Anil. As more disclosures surfaced, there was a view that the government was sufficiently “embarrassed” to ask Mr Deora to “retire” gracefully in January 2011.
Mr Reddy was meant to clean up the mess. Within weeks, it became evident that he was no pushover. Mr Ambani and his senior executives — including the representatives of RIL’s partner British Petroleum — had many meetings with him. But he was obdurate and didn’t budge from the fine print of the contract.
For months on end, a running battle ensued between officials of RIL and the petroleum ministry on the price of gas and “recovery” of costs, among other issues. The ministry contended that the company had deliberately reduced gas output in anticipation of higher prices and that the precipitous fall in gas production from the KG basin was exacerbating the already-acute energy shortage in the country.
RIL, on the other hand, argued that the sharp drop in the gas extracted from the KG basin (by around three-fourths from the peak level) was on account of geological complexities and ingress of water and sand.
The ministry refused to buy these arguments. The company claimed the government was sitting on its investment plans. The ministry counter-alleged that the company had not dug the number of wells it had said it would. What certainly did not help RIL’s case was that a pliant former regulator, director-general of hydrocarbons V.K. Sibal (who is currently facing criminal charges of favouritism and bribery), was replaced by an upright technocrat.
It was under these circumstances that the Prime Minister exercised his prerogative by deciding to replace Mr Reddy with Mr Moily. By doing so, he opened all his flanks. Mr Reddy had a reputation for probity and, unlike his predecessor Murli Deora, was not a staunch Ambani loyalist. Mr Reddy carefully covered his tracks by putting everything down on paper. He and his group of trusted bureaucrats calculated the potential losses to the country if gas prices were hiked — it ran to over $6.3 billion. Information was selectively leaked.
It was against this backdrop that the IAC team successfully connected the dots to complete the picture. Mr Kejriwal and Mr Bhushan hit hard with a message that resonated among many who were all too aware of the ugly nexus between corrupt businesspersons and their political benefactors. They drew a link between the higher prices of gas demanded by RIL and the rise in the prices of power and fertiliser to drive home the message that corruption and inflation were interlinked.
The anger and outrage against powerful politicians and their wealthy collaborators has spilled over into the streets.

The writer is an educator and commentator