With barely few months to go for polls, UPA-II, is in utter haste to meet its deadlines, clinch as many corrupt crony deal as it can. Latest being its no-holds-barred manipulations to change the Pricing Policy of natural gas, used mainly for power, fertilizer and the extraction of liquefied petroleum gas (LPG). Using the fig-leaf of the so called “expert” Rangarajan Committee recommendations, the Cabinet Committee on Economic Affairs (CCAE) on 28 June, 2013 announced the doubling of the price of natural gas from $4.2 per million metric British thermal unit (mmBtu) to a flexible $8.4 per mmBtu for five years from April 2014.

The govt would like us to believe that the hiked pricing will benefit the current producers of natural gas in India which includes two public sector majors (ONGC and OIL) and not just the private player Reliance, encourage future explorations and help India become self-reliant in oil and natural gas production by 2030!

But it doesn’t require much logic to see that the claimed benefits for the public sector is only a smokescreen; the single largest beneficiary of this pricing decision is going to be the private giant, Reliance Industries! The reasons are obvious: the huge cost jack-up that the user industries - mainly power, fertilizer and LPG- will face, are mostly in the public sector! So the benefits of higher gas price that the public sector oil companies (ONGC and OIL) are supposed to derive will get washed away by the interplay of (a)higher cost of production in the other public sector user industries, (b) a higher subsidy bill for fertilizer and power draining public exchequer and (c) burdening common man with higher prices of power, transport and food items! Based on the note submitted by concerned ministries for power, urea, LPG productions in the CCAE note, Outlook has published the following assessment of the ‘impact that the gas price hike will have every year on tax payers (calculated at 1$ =Rs 59)’: Power plants: Rs 46,360 crore p.a.; Urea production: Rs 3,155 crore p.a.; LPG production: Rs 1,620 crore p.a.; Total: Rs 51,135 crore p.a. With falling rupee, the burden is bound to shoot up much more! Thus, citizens would be made to pay either as taxpayers or as consumers for funnelling this bonanza to the Reliance!

Reportedly, the Fertilizer, Power and Finance Ministries have objected to the proposal. Dateline as well as twists and turns to arrive at this magic Reliance favouring number is worth noting: On June 14, Petroleum Minister Veerappa Moily informs the media that his Ministry had recommended that the price of natural gas be increased to $6.7 per mmBtu. It is widely reported that in the subsequent CCAE meeting various user ministries - the Urban Development Ministry of Jaipal Reddy, Rural Development Ministry of Jairam Ramesh, Chemicals and Fertilisers Ministry of Srikant Jena and Power Minister Jyotiraditya Scindia opposed the hike proposed by the Rangarajan Committee. It is reported, Chidambaram and Montek Singh Ahluwalia (a special invitee, why?) interestingly argued for $11 per mmBtu!!! Finally, the CCEA settled for the price of $8.4 per mmBtu (in the name of Rangarajan Committee formula), which is 24 per cent higher than that recommended by the Petroleum Ministry!

As the debate razed and the obvious cronyism became evident, Govt went into huddle to make some window dressing of the CCAE decision: Finance Ministry sent a ‘formal’ note (dated 4 July) to the Petroleum Ministry “to take appropriate steps to ensure that the Mukesh Ambani-owned RIL receives only the old price until such time it delivers the shortfall it was contractually obliged to supply from its KG D6 field but failed to” (The Hindu, 11 July 2013). However, following this report, the very next day, Moily assured the Reliance, “ There was no reconsideration of the CCEA’s decision..” But to keep the people in confusion he added, “...Let me make it very clear. There is no confusion, there is no vagueness. And I don’t think there is scope for any interpretation whatsoever. We have gone with the Rangarajan formula. The price in April 2014 could be more than what is prevalent today or even less than that. It all depends on the prices in the international markets under the approved formula..” (The Hindu 12 July, 2013)! What is the essence? Govt will stick to the so called Rangarajan formula but downplay publicising the whopping rise because that sounds too outrageous to digest!

What is this so called “expert” Rangarajan Formula all about?

In December 2012, following hectic lobbying by the RIL, a so called “expert” committee headed by the Chairman of the Prime Minister’s Economic Advisory Council, C. Rangarajan, came up with a recommendation that instead of the existing administered and negotiated method of pricing natural gas, India should adopt a single gas pricing formula based on import parity! Under the veneer of market transparency, the Rangarajan committee, in fact, invokes an inexplicable and opaque formula that that combines the internationally traded gas prices from the Henry Hub in the US, the UK and India’s imported LNG price along with that of Japan (which has one of the world’s highest prices) as one of the benchmarks to determine rates in India! What is the logic anyway when, Qatar is India’s principal source of LNG imports and Japan does not even figure in the scene. The inclusion of the Japan’s rate has jacked up India’s rate calculation, which goes against the global trend and norms anyway - when India is proposing $8.40 per MMBTU for domestic use, the corresponding rates per MMBTU in U.S. is $3.8, Oman $2.2, Qatar $2.5, Canada $3.8, Abu Dhabi $2-3, Malyasia $4, Bangladesh $3.5!

The fundamental question, which several experts have raised, is: after all how rational is it to fix gas price to import parity and not to the cost of production within the country?

Further, it is noteworthy that all kinds of numbers are being churned out in the name of this “expert” Rangarajan Formula. While the Petroleum Ministry, suggested a hike from the present $4.2 per mmbtu to $6.7 per mmbtu, the CCEA went ahead to suggest a hike to $8.40 per MMBTU! So who is calling the shots and under what rationale?

What however is amply suggestive is the political timing and political compulsion: the unusual haste with which UPA sealed the decision (which is supposed to come in force from after April 2014) well in advance and the muted response of the main ‘opposition’ party BJP to this decision designed to benefit the corporate giant Reliance just before the 2014 elections. With Mukesh Ambani and corporate honchos openly singing paeans for Modi, UPA appears to be desperate to keep the tycoon on board.

Box matter

Let us not forget that the same KG basin gas that was once offered to NTPC at $2.34/MMBtu for 17 years and which is documented to cost under a dollar per MMBtu to produce received $4.20/MMbtu in the first five years and is now guaranteed to receive twice that or more in the next five years. This is the road to wealth in a country wherein some 80 per cent of the people live below the $2/day purchasing power parity threshold.” - Surya P. Sethi (former Principal Adviser, Power & Energy, Government of India) in ‘Of Reliance, by Reliance, for Reliance’, The Hindu, 1 July 2013.