Visakhapatnam
June 30, 2009
E.A.S.Sarma
14-40-4/1 Gokhale Road
Maharanipeta
Visakhapatnam 530002
Tel. Nos. 0891-6619858/ 9866021646
To
Dr. Manmohan Singh
Prime Minister
Subject:- Pricing of Reliance Gas
Dear Dr. Manmohan Singh,
I have written to you and your colleagues in the government several times on the contentious issue of pricing and distribution of Reliance natural gas from the KG Basin. I have reproduced here a copy of my last letter dated 14-7-2007 for your ready reference. For reasons best known to the government, none of my letters has elicited any response whatsoever.
Strangely, the Petroleum & Natural Gas Regulatory Board Act of 2006 brought into force your government has kept the petroleum regulator out of the domain of gas pricing. In the absence of any semblance of competition within the gas market, both domestic and external, this has resulted virtually in bestowing upon Reliance and other players a monopolistic hold over the pricing of gas. You are aware that sectors such as electricity, transport and domestic cooking cannot afford to absorb a high price of gas.
Since the market forces are nonexistent in the gas market, the only way to fix the price of gas is through the administered pricing mechanism based on a normative-cost-plus-reasonable-return approach. It would have been prudent on the part of your government to wake up to this reality in time and amend the Petroleum & Natural Gas Regulatory Board Act of 2006 to empower the regulator to attend to this responsibility. It is not appropriate to entrust this task to the political executive as gas pricing cannot be and should not be subject to political maneuvering.
Unfortunately, your government had proceeded exactly in the opposite direction by asking a Group of Ministers (GOM) to fix the price of Reliance gas. The GOM had determined the price of KG gas at $4.2 per MMBTU. The basis for this and the returns that such a price would yield to Ambanis are not clear to the public. On the other hand, the courts have fixed the price of the same gas at $2.34 per MMBTU! Does it imply that the price fixed by the GOM will yield a clean margin of $1.86 per MMBTU, over and above the reasonable return on it considered appropriate by the court? Does it not cast doubts on the basis of price fixation adopted by the GOM?
The less the price of the gas, the better it would be for the consumer. Since natural gas is a precious resource that belongs to the people of this country, no private agency should be permitted to run away with unreasonable profits at the expense of the consumers at large. No private party should be allowed to charge a rent on this resource.
Also, it is equally important that the allocation of KG gas among the consuming sectors is determined by an apolitical (preferably statutory) body in the public interest.
I have come across a press report to the effect that the government is considering the setting up of yet another GOM to look into the pricing of KG gas! Had the government heeded to my earlier warnings, it would not have to get into this situation!
I am apprehensive that the government will use the smoke screen of potential revenue losses to support a high gas price that will eventually allow the private developer to make undue profits. I hope that good sense will prevail on those that look into gas pricing and whatever is appropriate in the public interest will be done.
Regards,
Yours sincerely
E.A.S.Sarma
Former Secretary to GOI
