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Press Note

Press Note

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Published by: Firstpost on Oct 31, 2012
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12/04/2012

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Kya Congress Mukesh Ambani ki dukaan hai? 
(All documents mentioned in this note are available on our site www.indiaagainstcorruption.org
 
) 
 
In 2006, Mani Shankar Iyer was removed and Murli Deora brought in to increase RIL capex from$ 2.39 billion to $ 8.8 billion and to increase gas price from $2.34 per mmBTU to $ 4.2 per mmBTU.
 
In 2012, Jaipal Reddy has been removed and Moily brought in to increase gas prices from $ 4.2
 per mmBTU to $ 14.2 mmBTU and to condone RIL’s blackmailing of reducing gas production.
 
 
Huge benefits given to RIL in last one decade despite flagrant violations of various agreementsby RIL. Benefits to RIL causing serious price rise in the country.
 
Both BJP and Congress involved. BJP signed a sweet deal with RIL in 2000. Congress faithfully implemented it.
 
If RIL demand of increasing the gas price to $ 14.2 is accepted, it would lead to shut down of several gas based power plants and increase in power and fertilizer prices. It would result in Rs43,000 crores of additional benefits to RIL.
In the Nira Radia tapes, Ranjan Bhattacharya
(Vajpayee’s son in law)
is heard telling Nira that MukeshAmbani told him
 –“Congress to ab
apni dukaan
hai.” Facts below show that both Congress and BJP are in
his pocket.Reliance Industries Ltd (RIL) has the contract to extract oil from KG Basin. Under an agreement of 2009with the government, they are supposed to sell gas at $ 4.2 per mmBTU upto 31
st
March 2014. Midwaynow, RIL is demanding that the price be increased to $ 14.2 per mmBTU. Jaipal Reddy resisted that andhe was thrown out.
Jaipal Reddy had prepared a note for EGOM, in which he mentioned that acceptance of RIL’s demand
would mean an additional profit of Rs43,000 crores ($8.5 billion) to RIL(in 2 years) at current levels of low production. Most of this gas is used in fertilizer and power production. Increasing gas price wouldmean an additional financial burden of Rs 53,000Crores ($ 10.5 billion) on central and state government(copy of relevant page of EGOM note is attached as annexure 1). This would in turn mean higherelectricity and fertilizer prices in the country or a higher subsidy burden.In order to pressurize the government, RIL substantially reduced its production of natural gas. Totalconsumption of natural gas in the country is 156 mmscmd. According to agreement, RIL was supposedto produce 80mmscmd (more than 50% of the total demand) from 2009. However, they are producing just 27 mmscmd, almost a third of their commitment. Production has been artificially kept low toblackmail the government. They are not just hoarding the gas, but also forcing various consumers to buygas from abroad. Gas from abroad costs around $ 13 per mmBTU.
RIL’s stand is simple –
 
“hum to gas $14.2 par hi denge, lena
 
hai to lo, nahin to jao.” 
Who does this gasbelong to? According to Supreme Court of India and the Indian Constitution, this gas belongs to the
Page 1
 
people of India. Complete surrender of 
UPA before RIL indicates UPA’s inability to run governance in
accordance with the Constitution.Drastic reduction in production has forced many gas based power plants in the country to shut down orrun at much lower capacity. According to media reports, almost 9000 MW of gas based power plants arelying idle. Today, power from gas based power plant costs around Rs 3 per KWH. If gas price is increased from $4.2 to $ 14.2 as demanded by Reliance, power rates would go upto
Rs 7 per KWH. That’s too expensive.
At that cost, most of these plants would have to permanently shut down.This is not the first time that a union minister has been eased out at Mukesh
Ambani’s insistence. In
2006, when RIL had to get its capex increased from $ 2.39 billion dollars to $ 8.8 billion dollars, ManiShankar Iyer was removed and a more Reliance friendly MurliDeora was brought in.
Brief history:
RIL got this contract during NDA regime in the year 2000. The contract was meant to favor RIL right fromthe beginning. In any business, increase in costs means decrease in profits. However, the NDAgovernment , signed a contract dictated by RIL wherein an increase in cost by one rupee meantadditional profits of RIL by almost Rs 2.2
. Isn’t it strange?
A parameter called Investment Multiple hasbeen defined in the contract as under:Investment Multiple (IM) = Total Revenue / Total InvestmentAccording to the contract, till IM is below 1.5, RIL takes away more than 80% of profits and governmentgets less than 20% of profits. It is only when IM becomes more than 2.5 that government gets 85%. Thismeans, RIL has a huge incentive to keep IM below 1.5 by increasing the expenditure artificially. Thus if Reliance were to increase expenditure from 1 Billion to 2 Billion on a revenue of 5 billion, their own netincome would go up from 1.6 Billion to 3.5 Billion. This is what the CAG has stated in para 8.1 of itsperformance Audit of Hydrocarbon PSCs. (extract from executive summary of CAG as annexure 2)In 2004, RIL submitted an Initial Development Plan (IDP) saying they would produce 40 mmscmd for aninvestment of $ 2.39 billion. All this happened when Ram Naik was the petroleum minister in Vajpayeeregime.Within 2 years, RIL submitted another plan saying they would produce 80 mmscmd for an increased
investment of $ 8.8 billion. Doesn’t that sound strange? To double production, you increase your
investment by four times? Having put the initial infrastructure in place, it should have cost lesser tocreate additional production capacity.Mani Shankar Iyer, who was the then Petroleum minister, would not have allowed this. So, Mani wasshunted out of petroleum ministry and Murli Deora, famous to be Reliance man, was brought in January2006. Despite strong protests by some MPs like Tapan Sen, Deora approved $ 8.8 billion expenditure. By
age
 
allowing $ 8.8 billion expenditure, in effect, Deora allowed a future revenue of over Rs 1 lakh crores ($20 billion dollars) for RIL.CAG has remarked that there is strong evidence that RIL is gold plating its capital expenditure.Expenditure has been artificially increased (for reasons mentioned above). For instance, RIL is requiredto place orders for its plant, machinery and other requirements through international competitive bids.CAG alleges that bids were arbitrarily rejected to favor some parties. Just one company namely Akergroup got many contracts (see annexure 3, which is an extract from CAG report). Is this group related toRIL? Is RIL siphoning off money through this method?
RIL’s pressure tactics:
 
RIL signed a contract with NTPC in 2004 to supply gas for its power plants at $ 2.34 per mmBTU for 17years. It signed a similar contract with RNRL to supply gas at $ 2.34 per mmBTU. However, RIL went back
on its word. Under RIL’s pressure, EGOM headed by Sh
Pranab Mukherjee, revised gas price inSeptember 2007 to $ 4.2 per mmBTU. NTPC and RNRL were forced to accept gas from RIL at revisedprice. By doing this, Pranab Mukherjee headed EGOM gave an undue benefit of Rs8000 crores to RIL.
What is RIL’s actual cost of production?
Cost of production is much less than $ 2.34 per mmBTU. (Copy of extracts from an SC order Annexure4).RIL had actually signed long term agreements with NTPC and RNRL for supplying gas at that rate for17 years. This means that at $2.34 per mmBTU also, RIL was making adequate profits. India is getting gasat $ 0.9 per mmBTU from Oman. Gas rates in Canada are at $ 1.74 per mmBTU. This means that at $2.34 per mmBTU also, RIL was making huge profits.
RIL sold out nation’s resources:
 
Ownership rights of this gas belong to the people of India. RIL is just a contractor hired by GOI to extractgas. Strangely, RIL sold 30% stake in 21 of 29 oil blocks to British Petroleum in July 2011 at $ 7.2 billion.Government gave approval to RIL to do that. How can they do that? It is almost like
 –
I hire a driver todrive my car and that driver sells off my car after a few days.
Performance of RIL so far has been much worse than perhaps the worst performing governmentdepartment.
1.
 
4 times cost escalation within 2 years from $ 2.39 billion in 2004 to $ 8.8 billion in 2006.2.
 
Increase in gas price from $ 2.34 per mmBTU in 2004 to $ 4.2 per mmBTU in 2007 to the presentdemand of $ 14.2 per mmBTU.3.
 
Capacity created for producing 80 mmscmd after incurring such a huge cost ends up producing just 27 mmscmd after 12 years.4.
 
31 oil wells should have been in production till now. Out of them, just 13 are functional.
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