Anil Ambani, fighting the petroleum ministry and Reliance Industries for enforcement of a 2005 gas deal, has warned that the higher price of gas suggested by the ministry will result in an increase in power costs. He was talking to shareholders at the annual general meeting of Reliance Natural Resources (RNRL).

The ministry had suggested that RIL should charge $4.2 as a base price for its gas from the KG basin, almost double the price at what RIL itself had bid to supply to government owned National Thermal Power Corp (NTPC).

While this would increase RIL's profits it will come out of the pockets of ordinary citizens of the country, Anil Ambani said. "The burden of the higher gas prices will eventually be borne by hundreds of millions of power and fertilizer consumers. The higher gas price demanded by RIL increases the cost of power for consumers by as much as Rs 1 per unit," he added.

He said the ministry's actions are helping RIL to take advantage of its monopolistic position in the Indian gas market to make super normal profits. By the end of the year, RIL will be producing half of India's total natural gas. Most of the other production is confined to government owned firms such as ONGC and OIL, who get only $1.88 to $2.4 per unit, around 40-60% of the price RIL has been "told" to charge by the ministry. It is estimated that at the price of $4.2 approved by the government, the D6 gas field will generate annual profits of around Rs 15,000 crore for RIL by next calendar year, doubling the bottomline.

"The real price of gas is not $4.20, but close to $7 per mmbtu, because the delivered price to bulk consumers would include huge additional component of transportation costs... The simple fact is that RIL has a short term monopoly, and to perpetuate this monopoly, and earn disproportionate profits at the cost of the people, RIL is spreading misinformation.. A gas price of $4.2 is exorbitant and can in no way be justified.

He pointed out that RIL's claim over the gas has ballooned since it started planning and developing the field and this needs to be subjected to scrutiny. RIL can easily "gold plate" its expenditure unless the government is vigilant, he said. RIL is entitled to take a large portion of the total production of gas and oil till it recovers its 2-3 times its total investment. Government will start getting most of its share of oil and gas only after RIL recovers the above share.

" The more RIL claims to have spent on capital expenditure the more we have to pay for gas.. RIL’s capital expenditure of nearly Rs 45,000 crore is nearly 33 % of India’s total defence budget. Yet, such mega expenditure was cleared by a management committee of four, comprising one junior official each from the Petroleum Ministry and director general of Hydro Carbons, and two representatives of the Contractor (RIL).

"The budgeted expenditure of RIL for peak production of 40 mmscmd in 2004 was only Rs 12,000 crore, which should not have exceeded Rs 20,000 crore when the production was doubled to 80 mmscmd. However, it is shocking that the capital expenditure has actually gone up by Rs 25,000 crore to a staggering Rs 45,000 crore when the output became 80 mmscmd," he pointed out.

"When we raised this issue with the ministry, it appointed a so-called independent expert to examine the matter. In his testimony, he said, and I quote: “It has not been possible to study perhaps a few of important documents which now appear relevant to the exercise. The most important is the production sharing contract between government and the operator.” In other words, by his own admission, the expert didn’t even read the terms of the PSC before putting his stamp of approval on RIL’s capital expenditure. I don’t know what would be the right term to describe this elegant audit arrangement – co-option, co-operation, collaboration or just collusion….,"he said.

He pointed out that the price set by the government for RIL is not only much higher than what its own firms charge, but also what is prevailing in the international market. "The situation seems even more bizarre, if one looks at other markets in the world. In the Middle East, gas prices are currently ruling at $1.5, or just under one-fourth of the delivered price in India. India now has among the highest short-term gas prices in the world, nearly 30% higher than even in UK and the US.. In our view, it would be against public interest to price gas in India for any user above $ 1.50," he pointed out.

He urged people to look at the dispute as something beyond corporate bickering or fraternal disaffection. "People say there is a history to the RIL-RNRL dispute – the corporate restructuring, and so on. But so far as the RIL-NTPC dispute is concerned, obviously there is no ego, no emotions, no family, and no corporate restructuring -- it is plain and simple corporate greed," the RNRL chaiman said to applause from the shareholders.