The Supreme Court verdict in the dispute between the Ambani brothers and their respective companies offers some comfort for all, with Anil Ambani faring the worst and the government faring the best. The younger Ambani has to renegotiate the memorandum of understanding (MoU) for gas with the older Ambani, though renegotiation is a bit of a misnomer since the price has already been fixed by the government. Even the eventual allocation of gas is now subject to government policy — any delay in permission to RNRL to set up a pipeline to its power plant, for instance, and such a permission for the Dadri plant has been pending for years — will ensure it won’t get any gas, agreement or no agreement. The larger point that the court has emphasised is that the government, which represents the will of the people, is the custodian of natural resources, like gas in this case, and so its writ has to be final. This is both desirable and problematic.
Since gas, or electricity, or an airport franchise generally turns out to be a monopoly (unless there are several suppliers and there is genuine “open access” for customers), it is a good idea to retain price caps, otherwise suppliers will jack up prices to the maximum possible. But the problem here is that the current price of $4.2 per million metric British thermal units (mmBtu) that RIL wanted, in place of the $2.34 in the Mukesh-Anil MoU, was one that was cleared by the Empowered Group of Ministers after RIL called for a bid. The bid itself was controversial since the Anil camp had argued that the number of bidders was small and the bids were restricted to firms that were desperate for gas. That needn’t detain us here, what is important is that if a political process is to ratify a price, the same political process can be used to come up with another price, say a $3.2 price, since it is obvious a higher gas price will lead to significantly higher electricity tariffs — while RIL has benefited from the government being on its side right now, such a decision would hurt it. Fair play, for both producers like RIL and buyers like RNRL, demands that an independent regulator be set up for deciding such tariffs along with an appellate or dispute settlement process. In telecom where, despite all its problems, the regulatory experience has been the best, cost data of incumbents have been successfully challenged by users.
The other problematic issue is that the verdict could lead to a reversal of the process of removing the government’s monopoly in critical resource sectors like oil, gas, coal and so on. One look at the success of companies like RIL and Cairn should make it clear that the opening-up has paid stunning dividends. If the marketing freedom given under the earlier Production Sharing Contracts, such as the one RIL signed, is now to be effectively removed, this will deter investments. Think of what will happen if, for instance, the essential ruling of the judgment is used by the government to decide on pricing of natural resources like coal or steel, who they should be sold to, and so on. Once again, a regulatory process will help. The court verdict is, above all, a victory for the government but the real lesson is to remove government from the process.
