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Mainstream, VOL L No 47, November 10, 2012

Judiciary as Reliance Gift Horse

Wednesday 21 November 2012

by Sandhya Jain

While appreciating India Against Corruption’s putting the spotlight on Reliance Industries, its face-off with the CAG and reputed role in the exit of Jaipal Reddy from the Petroleum Ministry, the author would like to point out that she had written about the judiciary’s role in facilitating Reliance’s unreasonable demands nearly two years ago in a column in The Pioneer, (December 21, 2010), which appeared on Vijayvaani the same day [ Article.aspx?id=1553]

The Supreme Court—under the former Chief Justice of India, K.G. Balakrishnan—permitted Reliance Industries an advantage that severely impacted the public sector NTPC, though the order was consistent with the wishes of the ruling UPA.
With corporate lobbyist Nira Radia again in the news, we would do well to recall that on December 14, 2010, the Supreme Court ordered the Centre to furnish her with a copy of the ‘complaint’ which led to her phones being tapped by income tax and other agencies. The Court showed crass indifference to the harmful impact this could have on the functioning of intelligence-gathering agencies which had probably been tipped off that a foreign (British) national was indulging in dubious activities.

Nira Radia, as disclosed by a series of sensational tapes mysteriously released two years ago, played a central role in corporate lobbying to make Andimuthu Raja the Union Telecommunications Minister in 2009. Doubtless with the blessings of the enigmatic powers that be, Radia was allowed to quietly wind up her Delhi business and retreat to her London home; journalists deeply complicit in her activi-ties also escaped with a little bruising. The loss to the exchequer in the 2G spectrum scam has since been quantified by the CAG at Rs 1.76 lakh crore, and has already taken a few lives myste-riously, besides revealing that an unidentified judge of the apex court allegedly received Rs 9 crores to fix a corporate problem.

The May 2010 judgment of the Apex Court pertained to a pricing dispute between the Ambani brothers which had a bearing on the critical issue of ownership of national resources. The assertion of state ownership of the Krishna-Godavari basin natural gas, of which Reliance is merely a contractor, likely cost Jaipal Reddy his job. Though prima facie a dispute between two brothers, it was known that the decision would impact the public sector NTPC which was buying gas for its power plants from Mukesh Ambani’s Reliance Industries Ltd (RIL), with consequences on the price at which power would reach the common man. The Supreme Court showed callous disrespect for the public sector and ordinary citizen.

Public interest in the dispute between RIL and Anil Ambani’s Reliance Natural Resources Ltd (RNRL) centres round the cost of natural gas. In the turbulent settlement of late Dhirubhai Ambani’s estate in 2005, ICICI Managing Director K.V. Kamath negotiated a purchase price for RNRL at US $ 2.34 per mmBTU from the RIL-operated KG-D6 block. This free market price between two private entities gave RIL a clean profit of thousands of crores per annum, as can be seen from the fact that India is buying gas from Oman as $ 0.9 per mmBTU.

But just two years later, the UPA agreed to purchase gas at nearly double this rate (US $ 4.20 per mmBTU) for the National Thermal Power Corporation, and buoyed by this bonanza, Mukesh Ambani insisted that RNRL pay the higher price. RIL would thus make almost double the profit (approximately Rs 23,000 crores per annum) on the sale of a national resource. The Supreme Court upheld this absurd contract and then Petroleum Minister Murli Deora called it a victory for the government. Naturally the Centre did not file a review petition, even though the Supreme Court agreed that gas is a natural resource and belongs to the nation, and still let the government pay a private party a higher than market price! In the process, the Supreme Court also damaged corporate ethics by allowing a negotiated agreement between two parties to be set aside cavalierly in favour of one party.

Now, encouraged by this attitude of arbitrariness on the part of the Centre and the judiciary, Reliance wants another steep hike in price, and may receive a favourable hearing from the new Minister, Veerappa Moily.

Whatever their motivations and sources of funding, and regardless of how this pans out for them in the political arena where they hope to make a mark, activists of India Against Corrup-tion have done well to expose the cosy relation-ship between the Centre and Reliance Industries, though they have not linked this to the role played by sections of the media, judiciary, and top bureaucrats who were party to sweetheart deals.

As public-spirited citizens and RTI activists, Arvind Kejriwal and Prashant Bhushan have a right to question why RIL has virtually stopped production of gas even as it is pressurising the regime to hike gas prices well before the stipu-lated period. It certainly enhances their credibi-lity that the government has no convincing answer for shunting Jaipal Reddy out of the Petroleum Ministry. The nation has the right to know if Prime Minister Manmohan Singh asked the Petroleum Ministry to seek the Attorney General’s opinion on Mukesh Ambani’s demand for higher prices—from US $ 4.20 per mmBTU to $ 14.2 mmBTU.

 The activists have alleged that Jaipal Reddy had prepared a note for the EGoM (see link at end) which said that acceptance of RIL’s demand would mean an additional profit of Rs. 43,000 crores ($ 8.5 billion) to RIL in two years at current levels of low production. As most of the gas is used in fertiliser and power production, this would also place an additional financial burden of Rs 53,000 crores ($ 10.5 billion) on the Central and State governments.

A pertinent issue that was allowed to go unchallenged at the time, which IAC has now raised, is that RIL was permitted by the UPA to sell its stakes to the multinational, British Petroleum, though gas is a sovereign resource belonging to the state. Still, the Centre—and the media—remained silent when RIL as a private contractor sold 30 per cent stake in 21 of 20 oil blocks to British Petroleum in July 2011 at $ 7.2 billion; the UPA approved the sale.

It may be pointed out that the 2G scam finally broke when companies, that got spectrum allocated at low prices, immediately sold their stakes to foreign entities for huge premiums, which established the truth that scarce spectrum was given away at throwaway prices. Kejriwal’s allegations that both the BJP and Congress regimes gave undue concessions to RIL who profited from the sale of 30 per cent stake to an MNC deserve scrutiny.

It has not helped the government’s case that on the very day that IAC made the allegations against RIL, the Oil Ministry was forced to cancel a meeting to decide how the CAG would audit Reliance Industries’ KG-D6 spending. Vinod Rai, Comptroller and Auditor General, called an Entry Conference with RIL and the Oil Ministry on October 31, 2012, to discuss the second round of audit on RIL’s spending on KG-D6 gas fields during 2008-09 to 2011-12. But the meeting had to be cancelled due to differences over the nature and scope of audit to be conduc-ted by the CAG. RIL wanted written assurances that the CAG would only audit accounting books and records under the Production Sharing Contract (PSC) and it would not be “required to provide documents, information or any clarification of matters which go beyond scope of audit under Section 1.9 of the Accounting Procedure of the PSC”.

RIL demanded that the audit report be submitted to the Oil Ministry, as provided under the PSC, and not to Parliament as is imperative under the CAG mandate. Under Jaipal Reddy the Ministry was demanding “unfettered access to account books” and withheld approval of the company’s investment proposals including annual budget for the past three years.

That the meeting was cancelled after the new Petroleum Minister assumed charge naturally strengthens suspicions regarding the change in the portfolio. BJP leader Jaswant Singh has pointed out that from a commitment to produce some 80 million metric standard cubic metres per day (mmscmd) as per Field Development Plan, RIL came down to about 28 mmscmd. There was also a reduction in the number of wells it should have dug which contributed to the huge gap in output (only 13 wells are func-tional as against the 31 wells that should have been in production). CPI General Secretary Suravaram Sudhakar Reddy pointed out that previously Petroleum Minister Mani Shankar Aiyar was dropped as Washington objected to the Iran-India gas pipeline he was pursuing, and now Jaipal Reddy has been shifted to please Reliance.

Prima facie the natural gas scam resembles the coalgate scam. Coal blocks were allotted on the ground that private sector participation would increase coal production. But instead of producing coal, the private parties squatted on the mines and even sold the blocks for profit. Here too, oil blocks were given to RIL on the plea that private sector participation would bring “efficiency” into the sector by enhancing production. Instead the reverse happened.

It would thus seem that the public sector, with all its limitations and inefficiencies, is the best guardian of sovereign natural resources. Maybe it is time to cancel the KG basin contract and hand over the wells to the ONGC.

2. Annexure 1 - Note prepared for EGOM
3. Annexure 2-3 - Executive summary of CAG report
4. Annexure 3 - CAG findings related to KG block
6. Annexure 5 - Notice to RIL
8. Prevention of Corruption Act
10. Opinion of Solicitor General
11. Opinion of Attorney General
12. Letter from Directorate General of Hydrocarbons
13. Nira Radia Tapes (Audio 1 || Audio 2) http://www.

The author is Editor,

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