War on Gas Price:Kejriwal Vs.Mukesh Ambani

UPA government’s decision to increase price of Gas from $4.2/MMBTU to $ 8.4/ MMBTU from 1st April, 2014 prompted the Delhi Government headed by the then Chief Minister of Delhi, Mr.Arvind Kejriwal to file  FIR against Reliance Chairman, Mr.Mukesh Ambani,Petroleum Minister Mr.Moily and 2 others who are believed to have conspired in unfair,unjust increase in price of Gas in voilation of the provision in the Production Sharing Contract for KGD6 fields.Though 2 PILs were earlier filed in the Supreme Court  by the eminent people through well known cunsellors,but filing of FIR by the Government led by Mr.Arvind Kejriwal has started virtual war between Aam Aadmi Party and Reliance,the main beneficiary of this increase in price of gas at the cost of exchequer.
  Recently, some articles have started appearing in the leading newspapers in support of higher price and thus,supporting Reliance and Government of India.
One article was published in The Indian Express on 15/02/2014 authored by Mr.Vikram S.Mehta—Fuelled by Ignorance—The AAP led debate on Gas Pricing betrays a lack of Understanding in the industry. The second article was published in the Times of India on 16th Feb., 2014 by Mr.Swaminathan –FIR Against Moily? As absurd as one against Kejriwal.
It is interesting to see how both these articles are trying to justify that the real beneficiary of increase in price would be ONGC and other National Oil Companies and NOT Reliance.After reading both these articles, I was reminded of a 20 year old incidence when Reliance got an article published in a leading newspaper in the name of someone,though written by its own employee.Once again  I am wondering “Who is the real author of these articles? Will some more such articles appear in  the near future?”
(1) Both the articles by Mr. Vikram S.Mehta and Mr Swaminathan have very cleverly ignored the real issue of pricing basis envisaged in Production Sharing Contracts of KGD6.  Mr. Mehta has mentioned that  ONGC produces  85%of the total gas production in the country and as per  Mr.Swaminathan Reliance gas production  is just at 10%. Both the authors have not mentioned “How these figures have been arrived at?” It appears that these figures are current for recent months as Gas production by Reliance from KGD6 is around 10MMSCMD i.e at its lowest level. There is no mention that Reliance is expected to produce 80MMSCMD gas from KGD6 and some additional quantities from other fields. In reality, gas production from Reliance could be more than 60%. In fact, production of Gas by Reliance in 2012-13 was more than 30% of the country’s production.
(2) Mr. Mehta has justified the pricing basis recommended by Dr.C Rangarajan without realizing that the recommendations are in violations of the mechanism   given in PSC. Can Mr. Mehta explain “How LNG can be treated same as Natural Gas just as Dr.Rangarajan has considered in its report.?” What is the relevance of price of Gas in Europe or USA for the gas produced in India? Should the pricing of Gas not based on PSC?
 Mr. Swaminathan has also justified the recommendations of Dr.C Rangarajan  and tried to brand him upright  and not pro Reliance as he was asked by Mr.Jaipal Reddy, previous Petroleum Minister, who was anti Reliance. It will be better,if Mr.Swaminathan concentrate on the real issues rather than awarding certificates of integrity or honesty or brand someone pro or anti. Let us look at the recommendations of Dr.C Rangarajan and then decide whether these are fair or pro Reliance. . According to PSC,” Valuation of Natural Gas would be on the basis of comprehensive arm’s length sales in the region for similar sales under similar conditions. The formula or basis on which prices shall be determined shall be approved by the Government, which will take into account the prevailing policy, if any, on pricing of Natural Gas, including any linkages with traded fuels.”
Can Mr.Swaminathan or Mr. Mehta or Dr.Rangarajan justify “How the gas price recommended by Rangarajan Committee is based on Arm’s length sales in the region?” The only price that was discovered on arm’s length sales was $2.34/MMBTU.
(3)  Mr.Swaminathan has further justified market and higher price as State oil companies are demanding higher prices. Well!  State oil companies are also asking crude oil prices on international pricing basis. Why GOI is taking discount from State oil companies to meet under recoveries for the Refining and Marketing companies.
(4) Mr.Swaminathan has also stated” All Gas exploration contracts say that gas discoveries can be sold at market price” It is not known which contracts are being referred to by  Mr.Swaminathan. We know for sure that the contract related to the present issue certainly does not support his statement.