On September 12, 2007, the ministry of petroleum and natural gas came out with a press note that was intended to put to rest days of speculation. What it did instead was to fuel another controversy. The press note laid down the gas pricing formula for natural gas produced under the new exploration and licensing policy (Nelp). The formula was submitted by Reliance Industries Ltd and approved by an empowered group of ministers (EGoM) that also froze it for five years from the day production started. The press note was framed by a joint secretary in the ministry.
NTPC, the government-owned power producer, criticised the landfall price of $4.2 a million British thermal unit (Btu) that the formula stipulated. There were protests from other quarters too. By 2009, the protests over pricing and non-allocation of gas to Anil Ambani-owned Reliance Natural Resources Ltd had acquired a deafening shrill that engulfed the corporate, political and media worlds.
Though natural gas was not central to the public discourse till then, the pricing issue assumed a proportion that put a number of policy makers in crisis. In this din, the real debate was obscured — that was about EGoM’s prudence in approving a price for five years, especially when the crude oil variable in the formula had long passed the $60-barrel cap.
The larger question of how gas pricing, allocation and transportation policies can be synergised to serve the producer and the transporter’s commercial interests and, at the same time, promote economic good by prudently channelling the subsidy failed to occupy the minds of decision makers. What was witnessed was a race to get more gas, so much so that at one point there was no more gas to allocate but the request for it totalled 600 million standard cubic metres a day.
Anil K Jain, then joint secretary in the ministry who framed the press note, has now come out with a book that seeks to fill the undebated and unaddressed policy dimensions of the natural gas story. The initial five chapters capture the contours of India’s gas economy and have little to offer readers familiar with the sector, though they may be good reference for the uninitiated.
Subsequently, the book builds up arguments on what has gone wrong with the “halfway house” liberalisation of the sector. A well-researched work, it reflects a deep understanding of the sector that results not only from the author’s advantage as an insider but also because his analysis goes beyond the government files.
Jain effectively deals with the subject without digressing to the controversial fight between the Ambani brothers or, for that matter, the rift between Reliance Industries and NTPC. In fact, he limits the entire drama to a box that refers to the May 2010 Supreme Court judgment that upheld the sovereign right of the government over natural resources from a policy perspective. In that respect, the book is certainly not a racy thriller but is an academic analysis of policy.
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The theme of Jain’s analysis is the implementation of Nelp and the attempt to reconcile the conflicting aims of assuring marketing freedom for producers and ensuring that key consuming sectors receive their prioritised allocation of gas.
Jain argues that though there is no formal gas utilisation policy, its implementation is perceived as an infringement on the commitment to have price reforms. He goes on to say that the three major policies of pipeline, utilisation and pricing evolved in a largely piecemeal manner are out of rhythm with each other, making it impossible to achieve the objectives for any one of them.
This is supported by the fact that policy making in natural gas had more to do with firefighting and dealing with increased demand from consuming sectors, but Jain’s study skips the crucial issue of how to address the competing demands. He does acknowledge, however, that had the approved price been higher, the allocation priorities might have changed since those sectors – power, fertiliser – might not have found it sustainable to buy gas at higher rates.
Rather than prescribing an approach for natural gas, the author identifies the starting point as removing price distortions in consuming sectors and calls for a review of policy objectives within these sectors. In the case of power, he touches on the competitiveness of gas-based power generation with respect to coal but does not capture the never-ending demand for gas from power producers.
Jain’s book also does not delve too deeply into regulation. The last chapter briefly examines the potential role of the Petroleum and Natural Gas Regulatory Board, but it is silent on how policy makers have rendered the two sector regulators, the other being the Directorate General of Hydrocarbons, lame ducks. As a result, on the downstream side the building of pipeline infrastructure has slowed considerably. The author suggests a way forward that is subdued when set against the questions the book raised at the start. For anyone dealing with the sector or proposing to do so, however, Jain’s work would certainly bring clarity to the many twists of the gas story, and in that sense it could be a starting point for further reforms.
NATURAL GAS IN INDIA
Liberalisation and Policy
Anil K Jain
Oxford University Press; Pages: 207; $90