)
After Communist Party leader Gurudas Dasgupta raked up the issue of gas pricing, former secretary E A S Sarma has written to Prime Minister Manmohan Singh to not accept Rangarajan Committee's report to review the existing price of $4.20 million metric British thermal unit (mmBtu) as it would imply, an annual windfall profit for the company to the tune of $313 million.
"The letter says that the unit cost of gas from KG Basin may not exceed $0.60 per mmBtu. If the existing price of $4.20/MMBTU, which in itself is questionable, were to be revised to, say, $10/MMBTU, around the level resulting from the Rangarajan pricing formula, it would imply an increase of $5.80," says Sarma in his letter.
He said the annual windfall profit for the company would be $313 million. "These profits will accrue without any additional investment or effort on the part of RIL. Over the lifetime of the gas field, the additional windfall profits will run into billions of dollars," Sarma told Business Standard.
When asked for comments, a RIL spokesperson said they were not aware of the letter and do not want to comment. The letter adds that natural gas markets are highly fragmented and there are no reliable price discovery mechanisms in place anywhere in the world. Depending on the supply-demand fluctuations, the gas prices vary. Against this background, any limited tender arrangement can be misleading, he said.
According to Sarma, "RIL offered to supply gas from KG basin to NTPC at $2.34 per mmBtu but the group of Minister constituted by the government at that time chose to close its eyes to it and ignored the advice given to it by the officials," says Sarma.
In the absence of a reliable market, the only way to determine the price of gas is through an independent, rule-based regulatory authority appointed under the law. But he said the government had deliberately disempowered the petroleum regulator, only to hand over the responsibility to the GoM which is no more than a political entity.
"RIL had originally overestimated the KG Basin gas reserves, claimed reimbursement of a huge amount towards the investments reported to have been made and promised gas availability up to 80 million cubic metres per day. The reserves as of now may not exceed one-fifth of the originally disclosed estimate. The gas availability has hardly exceeded 30 million cubic metres per day," Sarma's letter says.
There are several developers of gas-based power plants who have made large investments on their projects, assuming that RIL will provide them enough gas. "Their plants are running at less than 1/3rd of their capacities. As a result, Andhra Pradesh has been thrown into an unprecedented power crisis," he adds.
