After the scams in mining and spectrum, now we have the fresh revelations of a huge scam in oil-and-gas and evidence of massive corruption in the PPP model of constructing Delhi’s new Airport. The POSCO project is increasingly being exposed, not just as an unconscionable act of environmental destruction and forced eviction of the poor, but as yet another instance of corruption and corporate plunder of minerals. Almost every fresh instance of corruption that is being exposed strengthens our contention that the hallmarks of neoliberal policies – privatisation of natural resources and monopoly services, and the crony capitalist nexus between government and big corporations - are the biggest source of corruption today. Any struggle that genuinely seeks to rid our economy and polity of corruption will have to challenge these policies that spawn corruption on an unprecedented scale.

UPA’s Oil Slick : Another Mega Scam

A draft report of the CAG has exposed yet another “nexus” between the Government and private corporations, in which the UPA Government’s Oil Ministry and Director-General of Hydrocarbons (DGH) manipulated rules to favour private oil companies like Reliance Industries Ltd. (RIL), British Gas (BG) and Cairn India.

The CAG has revealed how the Oil Ministry and DGH allowed RIL to gain “undue benefit” by claiming capital expenditure costs inflated to the tune of 117% in the Krishna Godavari Basin. A joint venture of Reliance, BG and ONGC in the Panna-Mukta-Tapti oil fields, has also been accused for similarly inflating development costs at the cost of the Government exchequer. The production sharing contract between the government and private operators is such that the latter is allowed to recover all its costs before revenues are shared; therefore the higher a company’s costs, the lower the revenue available for sharing and the lower the government’s share. The Oil Ministry and DGH therefore facilitated these private companies in robbing the public exchequer to the tune of crores of rupees.

The CAG reveals how RIL bought diesel for its oil-field development activities at a higher price from from its own affiliate Reliance Petro Marketing (RPML), by falsely showing RPML to be the lowest bidder instead of the state-run Indian Oil Corporation. The CAG report also shows how companies like Cairns India were allowed to violate rules by exploring additional areas beyond the block stipulated in its contract in Barmer, Rajasthan. The CAG report also found that the government used a “backdoor method” to allow private operators to conduct oil exploration beyond the period stipulated in the contract.

The CAG corroborates what had already been alleged in a preliminary enquiry (PE) filed by the CBI against former DGH V K Sibal two years back in 2009. The CBI’s PE, filed by its Anti-Corruption Unit, had observed, “It is alleged that Sibal favoured RIL and approved a phenomenal increase in the capital expenditure from $2.4 billion to $8.8 billion for KG D6 field between September and December 2006 in lieu of personal favours/ services from RIL Group of Industries.” According to the PE, Sibal, in exchange for undue favours to RIL, enjoyed various return favours, including accommodation for his two daughters for more than four months at RIL’s guest house in Dalal House in Mumbai. The PE had been registered “against VK Sibal, unknown officials of the Petroleum Ministry and unknown others for gross misconduct committed by them.” But since then, the CBI enquiry had gone cold.

A former Revenue Secretary, (Mr. E.A.S. Sarma) has, in the wake of the CAG revelations, written to Manmohan Singh reminding that he repeatedly alerted the PMO to the irregularities in auditing capital costs, pricing and so on in the case of the RIL in the KG Basin and Cairn in Barmer. He has said that the PM turned a “blind eye” to these warnings, giving him the impression that that “the various government agencies including the PMO are apparently trying to hide the facts from the people of this country to benefit the oil companies.”

UPA Government: In Ambani’s Pockets

It is worth recalling here that the Radia tapes had already indicated the extent to which the RIL and its agent Niira Radia could get the UPA Government and even the main opposition, BJP, to do its bidding. In the Radia tapes, JD(U) MP and former revenue secretary N.K. Singh was heard saying that Murli Deora had probably been appointed Petroleum Minister because Mukesh Ambani “swung it for him.” N K Singh is also heard helping Radia ensure that during a debate in Parliament on Pranab Mukherjee’s move to introduce huge retrospective tax exemptions that would benefit RIL alone, the speaker from the opposition BJP would be handpicked, to rule out any possibility of the BJP opposing the move! In another conversation Atal Behari Vajpayee’s foster son-in-law is heard quoting Mukesh as saying, ‘Congress to ab apni dukan hai.” (Congress is now our shop.)

Privatisation Paves the Way for Loot

The CAG has highlighted the aspect of inflated capital costs and bending of contract rules to favour the private corporations. But the aspect of petroleum pricing is no less scandalous a case of undue largesse for private operators in this sector. And it is privatisation that has paved the way for literal loot of India’s oil-and-gas resources at huge cost to the public exchequer.

The private sector was first invited into the oil and gas exploration sector in 1997, and RIL was allocated blocks in the rich Krishna Godavari basin for throwaway prices, where it struck gas. In 2007, the Empowered Group of Ministers (EGoM) (including Petroleum Minister Murli Deora and then Finance Minister P Chidambaram as well as Deputy Planning Commission Chairman Montek Singh Ahluwalia), which was set up to recommend the price of gas, recommended that RIL be allowed to sell gas at a highly inflated price: $4.20 instead of $2.34, while the ONGC was being paid only $1.8 at the time. During the court battle between the Ambani brothers, RIL had stated that its cost price of gas was just 1.43 dollars. Why was the domestic price of gas fixed so much higher than its cost price, and what was the logic of pegging it to the price of crude (in dollars) in the international market?

Next, in 2009, the UPA Government doubled the price of natural gas produced by PSUs from $1.8 per unit to $4.2 per unit to bring it in line with the price approved by the government for the gas produced by Reliance. This was obviously done to secure the market for RIL: without this decision, lower-priced gas produced by PSUs would have been preferred by power and fertilizer producers to gas produced by RIL. By hiking the prices all around, the Government increased the burden on farmers who buy power and fertilisers – all to boost the profits of a single private corporation. Since fertiliser and power are subsidy products, the steep cost of gas would also result in much higher subsidy costs – i.e another needless drain on the public exchequer! So, the gas pricing by the government amounts to another scam.

This latest scam has once again underlined that government complicity in corporate loot of natural resources lies at the heart of corruption in today’s liberalized economy. The UPA Government seems all set to deny the evidence of the oil scam – as they once tried to deny the 2G spectrum scam. The Congress has been raising questions about “leakage” of the CAG report to the public. But an awakened public will not allow this scam to be swept under the carpet, and will certainly insist on the concerned government and DGH officials as well as private players being brought to book.