Is Petroleum Minister attempting to unduly help Reliance Industries?

Note: Business policy includes managing the “External environment” of which Government is a part. This management of 'Government' is an art. Reliance Industries since Dhirubhai Ambani days has mastered that art. Other companies use this art as well.

“In November 1990, even before Chandrasekhar was sworn in, Dhirubhai had told one diplomatic visitor: ‘Mr Malhotra will be replaced shortly and the new RBI governor will be Mr. S. Venkitaramananan.’ Dhirubhai Ambani implied that it was his recommendation.” This information underlined in Hamish McDonald’s book 'Ambani & Sons' is attributed to Madhav Godbole’s book. Hamish McDonald came to India in December 1990. Dhirubhai died on July 6, 2002 at the age of 69.

Incidents involving Murli Deora, Sharad Pawar, Pranab Mukherjee, Nitish Sen Gupta, Nusli Wadia, Indian Express and V P Singh, S Jaipal Reddy and now Veerappa Moily underline the exercise of managing 'External Environment'.

Founded in 1966, as of 2012, the Reliance Industries has over 85,000 employees and provides almost 5% of the Central Government's total tax revenue. As of 2012, Reliance Industries was listed among top 100 firms in Fortune 500 list of world's biggest companies by revenues.

It has come a long way since October 1977 when Reliance Industries went public through its initial public offering (IPO) and issued 2.8 million equity shares of Rs 10 each. Thereafter the company  raised money through convertible debentures. In 1978, the first year of its listing, Reliance had reached a high of Rs 50, five times the par value of the share, which was a high premium in those times. In 1980 it hit Rs 104...and in 1982 it reached a high of Rs 186. In early 1982 Reliance announced a rights issue of partly convertible debentures. Partially convertible debentures are used to borrow money from investors. They payout a certain rate of interest for a specific period and a part of those debentures is then converted into shares on a later date.

Questions are raised as to whether it is true that during India Gandhi's regime central government gave import concessions for import of certain raw materials of textile sector that hugely benifitted the P.F.Y & Textile projects of Reliance Industries?

SK Barua and JR Varma in their book 'The Great Indian Scam – Story of the Missing Rs 4,000 crore' refer to how the management of the company kept the price of the shares high artificially to ensure full subscription to the rights issue. 

It has been noted that the first edition of Hamish McDonald’s book 'The Polyester Prince' published in 1998 became available quite widely a day before Anil Ambani's mega Reliance Energy IPO opened for subscription. Some business rival may have been behind it. 

Someone asked a question as to can anyone make 1 lakh crore (1,00,000,0000000) in a thousand lifetimes. If it can be done the same must be explained.  Perhaps an individual cannot but a company can.

Questions have been asked as to is it true that ONGC surveyed the oil and gas reserves, prepared a list and handed over Krishna Godavari (KG) basin to Reliance Industries? This sounds too simple to be true.
Through competitive bidding in the National Exploration Licensing Policy, the major part of the Krishna Godavari Basin had gone to Reliance Industries and its partner Niko Resources Ltd. They discovered gas in the KG Basin. The entire scam of KG Basin came to light through a Parliament question first asked on December 12, 2006 by Tapan Sen and late Chittabrata Majumdar. It was a joint question.They got the information that in the KG Basin case, Reliance had placed a field development plan to produce 40 million standard cubic meters per day (MMSCMD) of gas. They placed the expenditure of $2.47 billion.After some time they submitted a renewed field development plan claiming that now they will produce 80 MMSCMD at the expense of $8.84 billion. So production capacity doubled, but expenditure was inflated almost four times.  According to Sen and as per textbook economics, if your production is increasing, then your expenditure per unit must come down. But, here, production cost almost quadrupled. Gas is a national asset. Reliance is the contractor and definitely it is entitled to recover the cost. But the inflated cost of Reliance has national ramifications. If the cost of gas exploration is too high, then it will affect the prices. The approval was given to Reliance in 33 days. Sen has underlined that the renewed field development plan worth $8.84 billion was approved by the ministry in 33 days.How can such a huge cost escalation be approved in 33 days only?
The Petroleum Ministry has failed to present their own estimate of cost of exploration. They only presented the types of expenditures, cost of rigs, etc.' He has told the ministry's officers, 'you haven't quantified how you have arrived at the estimate of $2.47 billion for 40 MMSCMD to $8.84 billion for 80 MMSCMD. I understand 5 to 10 per cent of cost here or there, but it can't be more than that because it's an international business'.
 In 2007, Sen wrote to Prime Minister Manmohan Singh and informed him that he is not satisfied with the petroleum ministry's presentation. He wrote four or five times to the PM and again when the petroleum ministry was deciding the pricing of KG Basin gas. High cost of gas has a bearing on prices of goods. The government appointed the Empowered Group of Ministers (EGoM). The government gives reasonable returns of 12 to 15 per cent on the cost to companies like ONGC but for Reliance different yardstick is being used and they are getting 25 to 30 per cent. Technical people should decide the price of gas explored by Reliance and examine if Reliance would deliver the fuel to the common man at that price or not. It may be noted that 30 per cent of power production in the country is run on gas.  Reliance has asked for a price of $4.3 per mmBtu. Government agreed to $4.2 mmBtu. Reliance which quoted $4.3 mmBtu to EGOM, quoted $2.34 mmBtu in the international competitive bidding of NTPC. Reliance is on record saying in the Supreme Court on an affidavit that their basic cost of exploring gas is much less than $2.00 mmBtu.

NTPC has written to the government that if it fixes the price as per Reliance's claims then government-owned company NTPC will lose Rs 24,000 crore (Rs 240 billion) in its two project in Kawas and Gandhar. It was given in writing to the EGoM.

Reliance hiked the price from $2.34 mmBtu to $4.2 mmBtu. Fertilisers companies, power plants and common consumers are paying more to Reliance. This collective loss should be calculated.

Reliance has sold 30 per cent stake to British Petroleum for $7.2 billion. It was approved by the government.This is a windfall for Reliance, but it is the loss to the people of India. Reliance has inflated cost on different counts. Whatever Sen said in his 2006 letter to the government has been thoroughly vindicated in the CAG.

On pricing, even the committee of secretaries that was appointed was against it. The Cabinet secretary and many others have directly or indirectly told the government not to fix a price of $4.2 mmBtu. The EGoM had Ministers of Power Sushilkumar Shinde, Fertilisers Ram Vilas Paswan, and the petroleum minister. The decision to favour Reliance in the EGoM was not unanimous. In their presentation to the EGoM, the power and fertilisers ministries gave their opinion against fixing the price asked by Reliance.

Besides this the report by the CAG has indicted Reliance for the violation of the terms of its contract in exploring gasfields in the Krishna-Godavari Basin.  CAG has asked the Union petroleum ministry to review the decision to allow Reliance Industries to retain the entire KG-D6 block.

(Photo: Dhirubhai and sons at the Patalganga petrochem complex inaugural in the ’80s.)The fact remains that stark assessment of "the relationship of government and big business" remains to be done especially when the Prime Ministerial candidate of the opposition party says, "Government has no business to be in business." The relationship between political parties and businesses also merit scrutiny what else can explain the unknown sources of income shown by political parties to the Election Commission. The donation of companies to the recognized and unrecognized political parties ensures revenue and tax exemption for the companies.

Gopal Krishna

CPI MP accuses Moily of favoring Reliance