The decision by oil minister Veerappa Moily to take back five gas discoveries in the KG-D6 block from Reliance Industries Limited (RIL) signals a shift in the government’s attitude in allocating scarce natural resources to the industry. Ever since the CAG blamed the UPA government for incurring a loss of Rs1.76 lakh crore by not auctioning 2G spectrum, many instances of government largesse to industry have come under the scanner. Subsequently, the CAG also found similar instances of unprecedented generosity towards corporates in coal block and S-band spectrum allocations. For a government with limited revenues and mammoth welfare schemes to finance, the rising public opinion against crony capitalism has been too loud to ignore.
The oil ministry’s justification was that RIL had missed timelines set by the Directorate-General of Hydrocarbons (DGH) to have the gas discoveries vetted for commercial viability. Earlier, the DGH had imposed a penalty of $1 billion on RIL for 2010-12 and $780 million for 2012-13 for failing to meet gas output targets. While the target is 86 million metric standard cubic metres per day (mmscmd) this year, production has fallen to 14 mmscmd. The ministry has also moved to scuttle the benefit of the recent hefty gas price revision accruing to RIL until the supply shortfall is met.
RIL’s underperformance has had a domino effect by crippling the power and fertiliser industry and increasing expensive fuel imports. Moily’s decision to act tough also follows vehement criticism from opposition politicians like Gurudas Dasgupta and Arvind Kejriwal who alleged that Moily was favouring RIL.
Moily seems to have realised the significant political costs incurred by him and the UPA government as a result of the allegations. In cancelling the 122 licences awarded by former telecom minister A Raja in 2008, the Supreme Court said that scarce natural resources “are vested with the government as a matter of trust in the name of the people of India, and it is the solemn duty of the state to protect the national interest, and natural resources must always be used in the interests of the country and not private interests”. By taking back the five gas discoveries, the oil ministry is acting in the spirit of this SC judgment. With an estimated 0.8 trillion cubic feet of gas reserves worth $7 billion, these five discoveries can be auctioned to fresh bidders. Going by the principle laid down in this judgment, the next casualty is certain to be the 164 coal blocks allocated between 2004 and 2009 without auctions. After a parliamentary standing committee found only two of them operational last year, an inter-ministerial group recommended de-allocation of 13 coal blocks and encashment of bank guarantees of 14 other allottees.
The flawed policies and the uncovering of scams have badly hurt the economy. Strangely, there are many defending the “rent-seeking” behaviour of allottees. They warn the government that penalising the corporate sector will weaken the economy further. The government’s decision to ignore these doomsayers is indicative of a definitive change in policy. In a competitive media environment that feasts on leaks and whistle-blowers like Ashok Khemka and Vinod Rai, the UPA government is under severe strain for implementing faulty policies and unduly favouring corporates. By acting tough here, the government can right some of the wrongs that have led to the ongoing economic crisis.