KG Gas Scam

The draft of the CAG report on the audit of the Production Sharing Contracts for KG basin gas has already exposed the nexus between the UPA Government and M/s. Reliance Industries. This also vindicates the stand taken by the CPI(M) in Parliament since December 2006.

When a question on the status of gas availability, output, capital expenditure etc. was first raised in Rajya Sabha on 12.12.2006 by CPI (M) M.Ps Tapan Sen and Late Chittabrata Majumdar, the Government had informed that M/s. RIL-Niko consortium had submitted development plan which envisages increase in production from 40 to 80 MMSCMD and increase in expenditure from 2.47 billion dollar to 8.84 billion dollar.

It was immediately pointed out in a letter by Tapan Sen to Minister of Petroleum and Natural Gas dated 21.12.2006 that the expenditure per unit of production, which should come down with the increase in production due to economies of scale, had been inflated abnormally, warranting immediate corrective intervention by the Government. This was followed up with three letters on the same lines dated 25.01.2007, 27.02.2007 and 12.03.2007 following which the concerned Minister responded that the matter was being examined.

On 30.04.07 a detailed letter was sent to Minister of Petroleum and Natural Gas with copy to the Prime Minister in view of the impact of goldplating (artificial increase in cost) on price of natural gas which is also the major input for power and fertilizer. However, on 15.05.2007 in reply to a question in Parliament, it was informed that the revised capital investment has been approved by Director General of Hydrocarbons - DGH.

Three more letters were sent to the Prime Minister directly for his intervention to stop goldplating and ensure that the price of natural gas is not abruptly increased. One letter was acknowledged but no action was taken. Subsequently, the price of natural gas for consumers was also fixed at 4.2 dollar/unit by EGoM in September 2007 in favour of RIL, overlooking its earlier offer of 2.34 dollar/unit for the same to M/s. NTPC.

Action was sought against former DGH through letters in August and October 2009 to Minister of Petroleum and Natural Gas. However, though CBI had sought for full probe on DGH, no action has been taken so far.

CPI (M) demands immediate action against the former DGH and other officials who have colluded in this sordid affair, causing loss to the government and unduly benefiting the Reliance Industries. CPI (M) demands immediate amendment of the present pricing formula in Production Sharing Contract (PSC) in consultation with the CAG.

The draft report of the CAG is only the tip of the iceberg. Besides revenue loss to the government due to goldplating, the hike in gas price in favour of M/s. RIL in September 2007 has implications in terms of increased power tariff and higher fertiliser subsidy.

In this regard, the Prime Minister should further clarify as to why:

a) Pricing exercise undertaken by the Government took into consideration only the price of 4.2 dollar/unit offered by RIL and ignored the price offered by the same RIL to NTPC which was much lower.

b) Government ignored NTPC/Power Ministry’s view before the Committee of Secretaries in July 2007 that “the pricing of gas should not be linked with international indexing i.e. crude oil, liquid fuel and CNG as the same will result in increase in the price of power with multiplier effect fuelling inflation.”

CPI (M) demands that gas price be immediately delinked from the international dollar price of crude. The price of KG basin gas should be revised on the basis of actual cost of production and a cost-plus formula.