Before dwelling into
Reliance KG Basin Issue, get some foundations clear
6.
War of Words
Under this policy,
government auctioned potential oil and gas field areas to private players such
as Reliance, Cairn etc.
These companies would take all risk of discovering the oil/gas, drilling it out and sell to to make profit.
These companies would take all risk of discovering the oil/gas, drilling it out and sell to to make profit.
§
if you are involved in Iron-ore mining, the Indian Bureau of Mines
( IBM) will determine its present market value and you have to pay 10% royalty
of that, to the Government.
§
For example you digged 1 kilo (!) iron ore, its present
market-value is Rs.100, you’ve to give Rs.10 as royalty
§
It does not matter how much profit you make out of this, you’ve to
pay 10% right from the day one of your mining activity.
§
But for the gas-exploration, the system of royality is different,
it is called:
§
But here in case of gas, first you’ve to do “Exploration”. It may
happen that you drill in a potential area but still donot find any gas, and yet
you’ve to purchase expensive drilling instruments, vehicles, hire engineers and
monthly salary to staff etc.
§
So there is a “gestation” period
involved, before you actually discover the gas, start selling it, recover your
costs and then see the profits.
§
If there is a direct “royalty” sharing formulas like conventional
iron-ore mining, then private players will not be interested in taking the risk
in this gas exploration activity.
§
Hence government came up with a concept called “Production Sharing
Contract (PSC)”
§
Under this scheme, the company will have to share royalty,
according to the profit made.
§
Initially company makes low profit, government gets extremely low
share, later company discovers more and more gas fields, its production
increases and costs go down, then it has to share more profit to the
government.
§
This is not the standard royalty model as seen in mining systems,
where revenue is shared regardless of profitability. This PSC model allows the
operator (RIL) to substantially recover his costs before the sharing of
revenue.
§
But As you can understand Private contractors (RIL) have virtually
no incentive to minimise capital expenditure and a substantial incentive to
increase capital expenditure (they’ll buy more and more vehicles, machines etc)
to keep their operation-cost high, which would result in low/lowest share of
profit for the government of India
§
It is alleged that Reliance used false accounting-methods to show
huge-costs and operating expenses to keep the profit low so that they have to
pay less money to the Government.
§
CAG found this out after auditing, media started reporting, right
now matter in PAC (Public accounts committee) of parliament.
§
Also, RIL had to take permission of government before raising the
sale price of Gas.
§
So citing the heavy cost and low-profit, Reliance also increased
the sale price of gas with Government’s permission.
§
And then this (expensive) gas was sold ot fertiliser companies,
power plants and thus snow-balling effect: price of fertilisers, electricity
also increased = inflation.
§
Director-general of hydrocarbons (DGH) was responsible for looking
after this exploration-activity, how much gas is generated, what is the
operating cost, is there any real loss etc. (but as the common sense
suggests) he might have taken “suitcases” to turn
a blind eye to all this.
§
1999 Vajpayee Government introduced NELP (NEw exploration
licensing policy)
§
2000 Reliance got the licence to explore gas in Krishna Godavari
Basin
§
2002 Reliance Industries discovered huge reserves of natural gas –
and some small reserves of crude oil – in a block called D6.
§
2007 CAG starts auditing
§
2011 CAG submits audit report and media starts reporting this
controversy.
CAG
Oil Ministry and its
technical arm, the Directorate General of Hydrocarbons, “did not pay adequate
attention to protecting the government’s financial interest.
Reliance Industry’s
response
CAG has not found any
false inflation of the cost or any dishonesty in developing the nation’s
largest gas fields.
Corporate rivalry motivated a few people with vested interests to indulge in a vicious smear campaign against us
CAG neither had any expertise in hydrocarbon exploration
Corporate rivalry motivated a few people with vested interests to indulge in a vicious smear campaign against us
CAG neither had any expertise in hydrocarbon exploration
Ashok Chawla Committee on
“Pricing of Natural Resources”
Production Sharing
Contracts like the one Reliance Industries signed for the gas-rich KG-D6 are
designed to benefit private players at the government’s expense.
Tapan Sen, a Rajya Sabha
MP
§
if your production is increasing, then your expenditure per unit
must come down. But, here, production cost almost quadrupled.
§
even if you take into account the trial and error method of
digging here and there, even if you take into account your wasted efforts of
searching gas and exploring,
§
your development cost cannot triple or quadruple.
§
Reliance can’t charge the country like this. It’s a clear case of
gold-plating the cost.’
§
It would incur the government a big loss because only after
recovering the cost of production would the government start getting a return
on the national asset.
§
inflated cost of Reliance has national ramifications. If the cost
of gas exploration is too high, then it will affect the prices.
§
Reliance, the company that had ‘gold-plated’ the expenditure of
exploration
§
Then Reliance hiked the price from $2.34 mmBtu to $4.2 mmBtu. So,
fertilisers companies, power plants and common consumers are paying more to
Reliance. This collective loss by the nation and to 1.2 billion people should
be calculated.
§
Whatever the money Reliance has to make, they have made.
§
The government should have quantified the loss to the exchequer.
The government should have calculated when would Reliance recover its cost and
when would the government start sharing profits.
§
The same Reliance sold 30 per cent stake to British Petroleum for
$7.2 billion. It was approved by the government.
§
Director General of Hydrocarbons should be prosecuted. The
production-sharing contract should be re-written and price level should be
revised.
§
It will make electricity cheaper, fertilisers cheaper and
industries would benefit.
§
I don’t blame Reliance. If I get the opportunity to steal, am I
going to leave it? It is the duty of the government to see that nobody takes
people for a ride.
The above is from http://mrunal.org/2012/03/economy-reliance-kg-basin-issue-reason.html
No comments:
Post a Comment