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The
Narendra Modi government is about to make two momentous decisions in
the energy sector shortly – the first on the ‘right’ price for
domestically produced gas, and the other on the pooled price of locally
produced and imported gas (R-LNG) for the power sector.
Whatever be the economic logic that will underpin the decision it
eventually takes, it is clear that the government does not want to be
seen to be supporting any one’s case to the detriment of somebody else’s
interest.
The
government will raise the price of domestically-produced gas which will
benefit producers like RIL, ONGC, Oil India, GSPC and others. Almost
simultaneously or perhaps slightly before that announcement, it will
decide on pooling of natural gas prices for the power sector. The
decision should benefit both the Ambani brothers, Mukesh and Anil, and
inevitably others in the two industry sectors.
Three years ago, the UPA government set up a committee headed by the
Planning Commission member Saumitra Chaudhuri to examine the need and
suggest a viable scheme to fix a pooled price for natural gas delivered
to consumers. That move was mainly designed to conceal a massive
bungling operation – some term it as an exercise designed to mask a
colossal corruption by Petronet LNG Ltd (PLL) – in the import of LNG
from the Gorgon project in Australia.
It
forced the state-owned GAIL to sign a Sales Purchase Agreement (SPA)
with PLL but, with no takers for its costly R-LNG, GAIL began lobbying
for the need to pool prices of costly LNG with cheap domestic gas. The
international LNG lobby had tremendous influence over a section of the
Planning Commission which did everything possible to push the case for
pooling of natural gas prices.
The Committee did not recommend general pooling of prices but favoured a
sectoral approach. General or sectoral, the pooling proposal was
opposed tooth and nail by Mukesh Ambani-controlled RIL and the UPA
government was too weak to resist it. RIL’s argument was that pooling of
prices was meant to subsidise LNG producers – and to be fair there is
considerable merit in this argument
In India, one has often seen that the resistance to a proposal isn’t
always built on logic – and a contra stand is taken to puncture someone
else’s interests. Could this be the reason why Anil Ambani opposed the
move to raise the price of natural gas from domestic sources – an issue
that RIL’s Mukesh Ambani was pitching for?
There
was no visible sign of resistance from the Anil camp after the two
brothers settled for a peaceful co-existence and even started to discuss
the scope for marginal collaboration between their businesses. But the
lobbies often work in the shadows and no one can beat the Ambani
brothers in a cloak-and-dagger operation.
It is possible that in its move to persuade the government to implement
the Rangarajan gas pricing formula, the Mukesh camp may have struck a
deal with Anil’s. As a quid pro quo, Mukesh may have relented in his
opposition to the suggestion for price pooling of natural gas. The
deepening silence, inaccessibility and the physical invisibility of some
of their lieutenants give sufficient indications of a deal.
Pooling
of natural gas prices does not make economic sense. The power that used
to be produced from plants that once used cheaply priced gas will go
up. At the same time, power produced from plants using imported LNG will
come down. It is a zero sum game and there is no real benefit for the
country, and will only re-order the clashing interests of private
players.
The Modi government is preparing to implement a deliberate strategy to
ramp up power generation in the country, without which its plans to
revive the stuttering economy will not take off. The gas-based power
plants must work at full capacity and this is possible only if they can
sell the power.
Narendra Modi’s power minister, Piyush Goyal, is a dynamic politician in
whom the Prime Minister has immense faith. Unlike many other
politicians, he is educated and understands economics — and this is one
of the reasons why lobbies have not been very effective in influencing
decision making by the Modi government, unlike the UPA. Pooling of gas
prices may be bad economics but that wrong is preferable in the interest
of the government’s goal to maximise power generation at any cost.
Mukesh
Ambani and other gas producers will have no ground to complain as the
price of domestic gas is also being raised. One positive element in
Modi’s style of governance is that it is not favourably disposed to the
system of appointing committees to decide on sensitive issues. The UPA
government virtually abused the mechanism to defer decisions and favour
interested parties. There are any number of Convenient Experts (CEs) in
the country who are inducted into such committees. They need not
necessarily know the subject and the only “meritorious” attribute they
possess is that they are extremely pliant. Their names are identified by
the interested parties and the government used to readily agree to
their appointments. Take for instance, the hydrocarbon sector. An
earlier committee had prepared a Hydrocarbon Vision 2025. Someone in the
industry wanted another one. Moily readily agreed. This time the
horizon has been extended till 2030 and the mandate has been slightly
modified. These CEs are well-off characters, drawing huge pensions but
agree to this deliberate mischief because they want to stay in the
limelight.
Dr C. Rangarajan has badly let down the community of CEs and domestic
gas producers when he failed to defend his pricing formula for domestic
natural gas. He had a respectable image that was badly mauled after he
failed to take on his critics. The charges against him, if
unsubstantiated, could be defamatory in nature and so his well
-wishers expected him to proceed against his detractors. But Rangarajan
was wiser: he knew the limits to expertise, especially in an area like
natural gas he was not at all familiar with. It created a piquant
situation where the student
started teaching the professor (redolent of William Wordsworth’s apt
line: “the child is the father of man”. Prof. Rangarajan, a known
monetary expert, must have been deeply distressed by the turn of events
but this should be seen as a lesson for other CEs. The halo starts to
slip quickly when the acolyte discovers the revered teacher also has
feet of clay.
In the UPA government, no one tried to understand Rangarajan’s formula
or question the recommendations because they were made for a specific
purpose. Unfortunately, for Rangarajan someone in the Modi government
understood the formula long before he became a minister and had recorded
his objections.
The panel of four bureaucrats, which was asked to work out the pricing
formula for natural gas, has completed its job in a short period of two
weeks. A decision is expected soon after the elections to the states
Assemblies of Maharashtra and Haryana. The revised price of gas cannot
be the one that Rangarajan recommended for obvious reasons. Nonetheless,
the gas price hike will be significant — far better than what would
have been thrown up using arm’s length criteria.
Both the Ambani brothers will be happy and so will the other
beneficiaries. We are not suggesting that Modi government is immune to
the pressure from industry lobbies. But till now, it has created an
impression that it isn’t going to allow any one in industry to look upon
an administrative ministry with a proprietorial (apni hi dookan) air – a
critical failing that the UPA regime seemed to not only tolerate but
also encourage.
To download the latest issue 'Volume 30 Issue 24 - March 25, 2024', click here |
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