2. Background
KG Basin is considered to be the largest natural gas basin in India.
In 1991, Reliance Industries got the rights to explore the D6 block as
per NELP (New Exploration and Licensing policy)
Reliance Industries discovered the biggest gas reserve in Krishna Godavari
basin . The site is called Dhirubhai 6 which is 7,645 sqkm in area.
In 1999 the government came up with the New Exploration Licensing Policy
(NELP) allowing private players to enter
Later RIL (divided between the two brothers) bagged the contract for D6
block of the Krishna Godavari river basin in Andhra Pradesh
3. Contd..
Production sharing contract (PSC) was signed in April 2000 between the
government and RIL and its minor (10 %) partner, NIKO Resources Ltd (a
Canadian corporation), for exploration & production of gas/oil.
Around 7 trillion cubic feet of natural gas was discovered by Reliance in the
Krishna Godavari basin in October 2002
Initial development cost at $2.4 billion was revised in 2006 to $5.2 billion in
the first phase and $3.3 billion in the second
The D6 was to produce 40 million MMSCD (Million Cubic meters per day),
which was revised to 80 MMSCD.
4. Without drilling adequate wells, Reliance kept on claiming that there was potential for
petroleum
The investments were quadrupled on paper & the capacity of commercial production
was doubled resulting in drastically reducing/ delaying the profit sharing with the
government.
5. Pricing of Reliance KG D6 Gas
Before 2009 Oil and Natural Gas Corporation (ONGC, a PSU) gas was being
sold at the rate of $1.83 per unit.
In 2004, RIL bid a price of $2.34 per unit to National Thermal Power
Corporation (NTPC, a PSU) against international competitive bidding.
RIL had second thoughts about its bid and refused to sign a Gas Sale and
Purchase Agreement forcing NTPC to file a suit against RIL in Bombay High
Court in December 2005
In 2007 matter of KG D6 gas price was referred to an Empowered group of
ministers (EGoM) led by the then finance minister, Pranab Mukherjee, who
approved a rate of $4.2 per unit for five years.
6. RIL refused NTPC to sell the gas at $2.34 & instead forced the govt. to grant them a
price of $4.2, all the while when ONGC was being allowed a price of $1.83.
RIL demanded ‘import parity’ price of $14.2 while the production came down to 31
MMSCMD (from 61) when it was supposed to go up to 80, apparently due to
‘technical snags’ and lack of gas!
The ministry had approved another price hike doubling the price of gas from $4.2
per unit to $8.4 per unit.
Arvind Kejriwal filed an FIR for cheating against Mukesh Ambani & Moily. He was
trying to stall the new price hike from April 2014
7. Current Status
The ministry had approved another price hike doubling the price of gas
from $4.2 per unit to $8.4 per unit proposed by Ragarajan Committee.
No substantial explanations are backed for this rise in price.
Cases have been filed by various social activists related to the alleged fraud
in pricing method.
The BJP government coming to power have suspended the rise in price for
3 months and the final hearing on this is to made on 30th of September by
the supreme court.
8. Kelkar committee Recomendations
The first model just tweaks the existing PSC. In this model the managing
committee and directorate general of hydrocarbons focus only on standards
and best practices, without assessing costs. Oversight will be left to the tax
authorities, who already oversee other forms of government share such as
royalties and taxes.
Kelkar's second model is a supernormal tax model. This gives the
government no share of oil or gas at all. Instead, the government gets just
royalties and taxes when profits are limited. When profitability crosses a
certain threshold, a supernormal tax kicks in, providing a much higher
government take.
9. Impact on Society
The decision to hike the gas price from existing USD 4.2 (Rs. 262.25) MMBTU (
one million British thermal unit) to USD 8.4 (Rs. 524.20) in India is one of the
highest in the world.
This price rise will cost India a minimum of Rs 54500 crore p.a. and allow RIL to
make a future windfall profit of Rs 1.2 lakhs crore.
Due to this rates of transportation, power production, fertilisers and food items
will also rise
The gas prices should determined based on cost if production and not
international rates
"For every one dollar increase in price of the gas there will be an extra cost of
over Rs 10,000 crore on subsidy given to fertilizer companies,"
10. Higher price = higher investment in untapped hydrocarbon frontiers
Higher investment = higher output of domestic natural gas
Higher output = reduction /elimination of India’s import dependence on
costlier LNG(liquefied natural gas )
Elimination of India’s import = improving the country’s fiscal stability and
energy security
The Core Argument by Govt.
12. If successful bidders find any oil or gas, they first get enough 'cost oil' to
recover their costs, then they get 'profit oil' that is a multiple of costs, and
then 'residual oil'.
"For every one dollar increase in price of the gas there will be an extra cost
of over Rs 10,000 crore on subsidy given to fertilizer companies,"
