Stink rises from Ambani gas deal
by Chintu Jaipuria on 11 May 2010 7 Comments

The Indian media has again missed the woods for the trees. When it includes the mainstream financial newspapers, the miss appears deliberate. The moral crux of the dispute between Mukesh Ambani’s Reliance Industries Ltd and Anil Ambani’s Reliance Natural Resources Ltd - and the only issue that impacts on the public - is the cost fixed by the government and its agencies on the purchase of natural gas from private players.

 

All else is of no public interest. If one brother chooses to violate a deal blessed by his own mother on grounds that he believes she is incompetent to do so, and then reinforces the insult by allowing his lawyer in the victory speech on the RIL-favoured verdict of the Supreme Court, to accept the award in the name of his wife, that is again a private matter concerning the immediate family, however dysfunctional it may appear in the public arena where it is being played out. 

 

But when the government decides to fix a price of US$ 4.20 per million British thermal unit (mmBtu) for its National Thermal Power Corporation (NTPC) to purchase gas from Mukesh’s RIL-operated KG-D6 block in the Krishna Godavari basin on India’s eastern offshore, two years after the peace deal between the two brothers had already set a benchmark purchase price for Anil’s company at US$ 2.34 per mmBTU, the public is entitled to question the actual market price of gas. It is pertinent that the 2005 deal was brokered by no less than the venerable former ICICI Managing Director K.V.  Kamath, as part of the larger issue of settlement of the Dhirubhai Ambani estate.

 

When Minister for Petroleum Murli Deora exclaims after the verdict that it is a victory for the government, is this a statement of fact or an admission of guilt? It is a statement of fact if the government has indeed benefitted from the ruling, which it has not, for it has ended up paying nearly twice the rate that Mukesh in the private deal had initially agreed to let Anil pay for his gas. It is an admission of guilt if the government equates the sovereign interests of the nation with that of a private company. The government needs to clarify its position on this score.

 

Now for the Supreme Court. As the name suggests, it is the court of last appeal. 

 

In its wisdom, the Supreme Court has held that gas is a natural resource belonging to the nation, and that the government can therefore fix its price too, even if it means fixing the price at a higher rate than necessary in the free market.

 

In fact, the rate fixed for Mukesh is going to cost the government nearly twice what it could have if it had followed the Ambani family deal that took place two years previously. What the government would have us believe by implication - now validated by the highest court in the land - is that Dhirubhai Ambani had wasted his money on educating his two sons for degrees from a prestigious university in the United States. The two brothers, it turns out, had made a deal at a low, highly unrealistic price, one that the government regarded as profitless for Mukesh and RIL.  

 

The more plausible explanation is that the two brothers – recipients of their father’s genes and trained in top notch management institutions in the United States – can be safely presumed to have agreed to a pricing based on sound business sense.  

 

Yet the government went ahead and fixed the price of a resource it claims to own at a much higher price, and will now purchase it from a private party (Mukesh’s RIL), thereby inflicting on itself a higher damage in costs.

 

It is this incredible act that has won the sanction of the Supreme Court: that first the government owns this resource, and secondly, that it can fix a price on it that would be unfairly high to itself! 

 

In any case, the people have indeed lost once again. The additional profit that will accrue to Mukesh from this verdict is being pegged at around Rs 23,000 crores. The loss to the government from keeping their rate of purchase from RIL at nearly twice what Mukesh had agreed to under the banker K.V. Kamath-brokered and matriarch Kokilaben-blessed deal to Anil could also presumably be put at tens of thousands of crores. 

 

In the apparently desperate attempt to favour one side in this dispute, serious collateral damage has been done to India’s corporate image, viz., the sanctity of an agreement between two parties being contemptuously brushed aside by government and judiciary. Secondly, the government has brought arbitrariness to pricing policy in such a critical area of the economy as the energy sector. The first will create confusion in the private corporate sector within India, and the second will keep foreign players from entering the sector, where foreign capital is urgently required. 

 

Before tears are shed for any apparent loser in this dispute, one need only observe carefully in the coming months decisions from various pillars of democracy that can be ascribed to that old dictum: what you lose on the swings, you win back at the roundabouts. Unlike in the world inhabited by ordinary citizens, in the Indian corporate world, there are usually no permanent losers. 

 

But ultimately, in the balance sheet of public trust that this government may one day have to furnish, this loss of tens of thousands of crores should now be placed under the column marked government costs, just beside the tens of thousands of crores suffered by the government due to its own telecom minister’s transgressions.  

 

With the reported involvement of reputed journalists in Union Telecommunication Minister A. Raja’s very cabinet appointment, the journalistic obfuscation of the Ambani gas issue should not seen as inadvertent media misreporting. While the educated public in India had long been convinced of the close, lucrative relationship of corporate giants with senior politicians and bureaucrats, the fourth pillar f democracy – the media – will now become part of this unholy nexus in the Indian collective conscious. With the court’s ruling on this case, the remaining democratic pillar may also come to be seen as standing on shaky ground.

 

The writer is an independent analyst

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