Arvind Kejriwal's Reliance FIR shakes up corporate world

Delhi chief minister Arvind Kejriwal on Tuesday accused Reliance Industries (RIL) of creating artificial gas scarcity, which, in turn, leads to inflation. Kejriwal said he would ask the government to suspend the latest order on gas pricing, pending an inquiry.

Kejriwal has directed the anti-corruption branch (ACB) of the Delhi government to file an FIR against RIL chairman Mukesh Ambani, Union petroleum minister M Veerappa Moily, his predecessor Murli Deora, and former director general of Hydrocarbons, VK Sibal, for "an unnecessary hike in natural gas prices" extracted from Krishna Godavari Basin.

The Delhi CM's move has shaken up the corporate world. Business analysts say such a move may benefit AAP politically, to an extent, but that it will also negatively impact gas exploration and production activity.

Coming on the eve of general elections, the Congress has already ridiculed Kejriwal's intentions while labelling him a "shoot and scoot" cowboy. The Delhi CM, however, remains nonplussed. He said the ACB will register an FIR without conducting a preliminary inquiry as the Delhi government does not think it was mandatory.

The FIR will be lodged based on a complaint filed by former cabinet secretary TSR Subramanian, former navy chief Admiral RH Tahiliani, former secretary to government of India EAS Sarma and noted Supreme Court lawyer Kamini Jaiswal. The four complainants alleged that because of an active collusion between RIL and some ministers of the central government, the extraction cost will increase from $4.2 (Rs262.25) per mmbtu (one million British Thermal Unit) to $8.4 (Rs524.20) per mmbtu, making gas prices in India one of the highest in the world.

Kejriwal said the natural gas extraction cost will increase from April 1, which will hurt the common man. He has sought action against the quartet under section 13(1) of the Prevention of Corruption Act, 1998. "The hike will increase the hardships of the people of Delhi and could also lead to non-availability of natural gas in the capital. Therefore, a thorough and impartial probe by the ACB is important," Kejriwal said.

However, it remains to be seen if the Delhi ACB is capable of registering an FIR in the matter. The CM avoided questions on its jurisdiction. However, the Delhi government pointed out that all decisions, including finalising the hike in gas prices, were taken in Delhi and so, the ACB has the power to investigate the matter.

The CM said the CAG report of May 2012 observed that in awarding the KG Basin gas contract to RIL, the government had given a windfall gain of Rs1.25 lakh crore to the company. The government also observed that in the past 10 years, two petroleum ministers — Mani Shankar Aiyar and S Jaipal Reddy who did not work according to the wishes of RIL — were shifted out of the ministry.

In its statement, RIL said: "The direction of the Delhi government to order the registration of an FIR in relation to the decision of the Union cabinet to revise the price of gas is indeed shocking. The complaint and each of the allegations on the basis of which the Delhi government has taken such action are completely baseless and devoid of any merit or substance whatsoever.... The issue of gas pricing is a contentious issue between the government of India and the contractors."

The Congress said it has no issues with the probe, but it should not be inspired by political vendetta. "No guilty person should be spared but the consideration of the probe should not be political," said Congress spokesperson Ajay Maken.


RIL's claim and real output
RIL has been caught in the KG-D6 controversy since 2010, when the company first reported a fall in gas production. RIL had claimed that KG-D6 output should reach 80 mmscmd (million metric standard cubic metre per day) by April 2012.

Though RIL has made 19 discoveries in the KG basin, only three — D1,D3 and MA — produce gas. RIL currently accounts for around 16% of the country's gas production.

Production from the two most controversial fields — D-1 and D-3 — started in April 2009. After hitting a peak of 60-61 mmscmd in early 2010, the output started dropping. At December 2013, it used to be 13 mmscmd. The current output stands at 13 mmscmd.

How KG D6 gas shortage has hit companies
The fall in output has severely affected many gas-consuming sectors like power, fertiliser, steel and city gas distribution. Many power and steel plants, which were completely dependent on KGD6 gas, are either idle or carrying out production on costlier imported LNG. Essar Steel, JSW, Ispat and Welspun, Maxsteel are three examples. Welspun is completely idle.

Another example is NTPC. Because of the gas shortage from the KG basin, the ministry of power asked the company not to plan any gas-based power projects for the next five years. NTPC was planning to expand its gas-based power capacity to 8,000MW.

The power sector accounts for 44% of gas demand in the country, and fertiliser 23%. A gas price hike of $8.4 per mmbtu will increase the cost of power generation by Rs42,168 crore annually, which will eventually be passed on to consumers.

A price increase of $4 per mmBtu (metric million British thermal unit) will increase the power-generation costs of gas-based plants to Rs5.7 per unit from the current Rs3.8 per unit.