From 2G to KG: Where Does the Buck Stop?

by Dipankar Mukherjee

THE government of the day does not own the natural gas from Krishna Godavari (KG) basin. It is a natural resource owned by the people of this country and the government is only the trustee. National resources are owned by the doctrine of public trust as held by the Supreme Court. Natural gas being one of the main sources of energy for production of power and fertilizer, higher price of gas means higher tariff from gas-based power plants and higher fertilizer subsidy. That is why the recently revealed CAG’s draft report very correctly categorises the loss on KG gas scam as “unquantifiable” unlike 2G scam where the quantification is more specific to the tune of Rs 1.76 lakh crore.

But the most glaring difference between these two cases is on the issue of accountability i.e. where does the buck stop in the KG gas scam? Let the facts speak for themselves.

GENESIS OF

THE CASE

Till recently gas production and marketing was entirely with the public sector and pricing was administered. This was opened up for private participation in the nineties. The New Exploration and Licensing Policy (NELP) was announced in 1997 and M/s RIL was awarded the contract in the first NELP round for operating KG basin, which has India’s largest gas discoveries. A Production Sharing Contract (PSC) was signed between the government and RIL, the contractor, to govern gas production and pricing. The opening of gas production and marketing to private sector resulted in dual pricing of gas: administered and market-linked. Administered Price was through “Administrative Pricing Mechanism” (APM), which comprised actual cost of production plus reasonable profit, determined by the government. Before the production and marketing of KG basin started in 2009, the pre-dominant part was covered by APM @ 1.83 US dollar/unit. Before the marketing of KG gas, market pricing was done for relatively small volumes by private operators which were in the field before NELP.

CAG’s draft report has actually vindicated one of the two major charges leveled by CPI(M) MPs against government-RIL nexus on KG gas viz the “gold plating” or “manipulating the development cost of the gas fields”. The other charge was regarding high price of Reliance gas @ 4.2 USD/unit fixed up in 2007 by an Empowered Group of Ministers, in spite of the fact that actual production cost of KG gas was 1.43 USD/unit, the APM cost of ONGC was 1.83 USD and most shockingly RIL itself had quoted 2.34 USD/unit to M/s NTPC, the Maharatna PSU, in response to an international competitive bidding in 2004. This issue of pricing of gas has not been dealt in CAG’s Draft report.

CHRONOLOGY

OF EVENTS

                               I.            The question was first raised in Rajya Sabha on December 12, 2006 by CPI(M) MPs late Chittabrata Majumdar and Tapan Sen. The government informed that M/s RIL-Niko consortium had submitted a development plan that envisaged increase in production from 40 to 80 mmscmd and increase in expenditure from 2.47 billion dollar to 8.84 billion dollar. It was immediately pointed out in a letter dated 21.12.2006 to minister of petroleum and natural gas by Tapan Sen, MP and a member of Standing Committee of Petroleum and Natural Gas that the expenditure per unit of production, which should come down with the increase in production due to economy of scale, had been inflated abnormally, warranting immediate intervention by the government.

                            II.            This was followed up with three letters dated 25.01.2007, 27.02.2007 and 12.03.2007. On April 30, 2007 a detailed letter was again sent to minister of petroleum and natural gas with copy to the prime minister about the likely impact of gold plating on price of natural gas. On 15.05.2007 in reply to a question in parliament, it was informed by the government that the revised capital investment has been approved by DGH.

                         III.            Three more letters dated 11.6.2007, 4.7.2007 and 13.7.2007 were sent by Tapan Sen to the prime minister directly for his intervention to stop gold plating and ensure that the price of natural gas is not arbitrarily increased. No action was taken other than mere acknowledgement of letters.

                        IV.            The prime minister and his office swung into action only when the then chief minister of Andhra Pradesh late Y S Rajasekhar Reddy raised a number of issues on KG basin gas, including the gold plating and pricing of gas in a series of three letters dated 16^th, 29^th & 30^th June 2007. Some of issues raised by Reddy were common viz

a)     The proposed market discovery price of natural gas produced from KG basin @ $ 4.5 to $ 5/MMBTU would mean an increase of 256 per cent from the present APM prices.

b)    RIL has obtained bids from consumers with stranded assets and claim this to be market driven price forgetting its own bid to NTPC. This bid should be treated as market price because this price came through global competitive bidding.

c)     The government should monitor the investment by the contractors and have it scrutinized by independent and autonomous authority so that costs are not unduly inflated.

d)    It will also be necessary to constitute an independent autonomous regulatory authority to decide upstream pricing of gas.

                           V.            PM/PMO immediately referred these letters to a Committee of Secretaries headed by cabinet secretary which was assigned to give report on issues related to supply and pricing of gas.

This raises an immediate question – why did the PM/PMO selectively choose to refer only the three letters written by Andhra Pradesh CM to the Committee of Secretaries ignoring the letters from an MP, that too an MP who was a member of Parliamentary Standing Committee on Petroleum and Natural Gas? Were these letters that contained several facts and figures ignored only because he was neither a Congressman nor someone from civil society? Who is responsible for this sidelining of a people’s representative in parliament?

REPORT OF THE

CABINET SECRETARY

The Committees of Secretaries met on 29.6.2007, 2.7.2007, 6.7.2007 and 10.7.2007. And on development cost of the gas field, as per available information, the cabinet secretary reported:

‘The accountability of Management Committee mechanism for approval of various costs needs to be enhanced. For this purpose, Ministry of Petroleum & Natural Gas would draw up guidelines and mechanisms with the approval of the government as large amounts of government revenue in profit share are involved. Effective audit mechanisms through C&AG or other reputed agencies would be put in place. It is noted here that under Article 25.5, “The government shall have the right to audit the accounting records of the contractor in respect of petroleum operations in the accounting procedure.” The government must, in consultation with the CAG, appoint an international auditor who has sufficient experience in the field of oil exploration and production.’

The report was sent to PMO. Did the prime minister/government consult CAG and appoint an international auditor? Who should be blamed for not taking any preventive step to stop the revenue loss, though cautioned repeatedly by CPI(M) MPs, AP chief minister and even the cabinet secretary? Where should the buck stop?

GAS PRICING

FORMULA

What did the cabinet secretary’s report say regarding the pricing formula offered by RIL as per which the “well-head” price (i.e. the price at the production point) was 4.33 dollar per barrel and the delivered price at the user end would be 4.76 to 5.98 dollar without taxes? It reportedly said “the RIL formula may be taken up for approval only after a policy is put in place. Prima facie the formula appears to suffer from several infirmities in respect of the formula employed and the bidding process.”

The above was based on the presentations by the ministry of fertilizers and NTPC/ministry of power, which specifically stated:

·        RIL price formula is flawed;

·        A delivery price beyond 5 dollar/unit will be prohibitive for fertilizer sector and every increase of 1 dollar will involve an additional Rs 2000 crore subsidy;

·        Gas price beyond 2.34 dollar will be prohibitive for power sector;

·        Pricing should be fixed by Petroleum & Natural Gas Regulatory Board after amendment in the Act;

·        It was not prudent to fix a price which will jeoparadise the NTPC's case wherein price of 2.34 dollar was arrived at after International Competitive Bidding.”

Not only that, the chairman & managing director of NTPC in a letter dated 24.8.2007 wrote to the chairman of EGoM:

“In continuation of the presentation I made on the gas pricing issue of Reliance Industries Limited for KG Basin with particular reference to NTPC contract, I would like to convey that implication of the price differential between gas price as delivered at Kawas/Gandhar as per NTPC Contract and RIL's proposed price, will be of the order of Rs 24,000 crore for the quantity contracted by NTPC during the entire contract period of 17 years. This aspect may also please be kept in view.”

Inspite of the above, the EGoM approved the price formula in a great haste on 12.9.2007 though the production of KG gas started only from 1.4.2009. The rate was slightly reduced from 4.33 dollar to 4.2 dollar/unit. Why this hurry when there were serious question marks on development cost, pricing formula, loss to NTPC, financial impact on fertilizer and power production? Who is answerable to the parliament on an issue concerning three ministries viz Petroleum & Natural Gas, Power and Fertilizer? A minister or a Group of Ministers or the prime minister?

WHY

EGoM?

As outlined at the outset, gas pricing was mostly based on cost plus reasonable profit basis as per APM and there was no sacrosanct formula for pricing for non APM gas produced by private sector, which covered very small volumes before KG basin gas. Keeping this in perspective the "Integrated Energy Policy" document of August 2006, prepared by the Planning Commission, recommended:

"As long as there is shortage of natural gas in the country and the two major users of gas, namely fertilizer and power, work in a regulated cost plus environment, a competitive market determined price would be highly distorted. The prevailing regime of fertilizer subsidies & power sector subsidies would further amplify such distortions and cross subsides. In such a situation price of domestic natural gas and its allocation should be independently regulated on a cost plus basis including reasonable returns."

The prime minister is the chairman of the Planning Commission and there was a gas shortage in 2007 which continues till date. Then who decided to overrule the Planning Commission recommendation for “Cost Plus” pricing and went for a distorted market determined price through a fast-track EGoM?

And finally what was the rationale for forming an EGoM headed by external affairs minister to fix gas price when Energy Co-ordination Committee (ECC) headed by the prime minister and comprising ministers of Finance, Petroleum & Natural Gas, Power, Coal, deputy chairman of Planning Commission, chairman of Economic Advisory Council to PM, with principal secretary to PM as convener was already in place since July 2005. Need for rational pricing to promote inter fuel substitutions (in this case gas, coal and oil) is one of major issues before ECC. Still, why a separate EGoM? Is it a case of shirking responsibility or of willfully insulating oneself from another ‘G’ series scam? Who will answer? Obviously not Jaipal Reddy, Deora, Sibal or Digvijay Singh. WHERE DOES THE BUCK STOP?

The Three Sources and Three Component Parts of Marxism

Throughout the civilised world the teachings of Marx evoke the utmost hostility and hatred of all bourgeois science (both official and liberal), which regards Marxism as a kind of “pernicious sect”. And no other attitude is to be expected, for there can be no “impartial” social science in a society based on class struggle. In one way or another, all official and liberal science defends wage-slavery, whereas Marxism has declared relentless war on that slavery. To expect science to be impartial in a wage-slave society is as foolishly naïve as to expect impartiality from manufacturers on the question of whether workers’ wages ought not to be increased by decreasing the profits of capital.

But this is not all. The history of philosophy and the history of social science show with perfect clarity that there is nothing resembling “sectarianism” in Marxism, in the sense of its being a hidebound, petrified doctrine, a doctrine which arose away from the high road of the development of world civilisation. On the contrary, the genius of Marx consists precisely in his having furnished answers to questions already raised by the foremost minds of mankind. His doctrine emerged as the direct and immediate continuation of the teachings of the greatest representatives of philosophy, political economy and socialism.

The Marxist doctrine is omnipotent because it is true. It is comprehensive and harmonious, and provides men with an integral world outlook irreconcilable with any form of superstition, reaction, or defence of bourgeois oppression. It is the legitimate successor to the best that man produced in the nineteenth century, as represented by German philosophy, English political economy and French socialism.

It is these three sources of Marxism, which are also its component parts that we shall outline in brief.

I

The philosophy of Marxism is materialism. Throughout the modern history of Europe, and especially at the end of the eighteenth century in France, where a resolute struggle was conducted against every kind of medieval rubbish, against serfdom in institutions and ideas, materialism has proved to be the only philosophy that is consistent, true to all the teachings of natural science and hostile to superstition, cant and so forth. The enemies of democracy have, therefore, always exerted all their efforts to “refute”, under mine and defame materialism, and have advocated various forms of philosophical idealism, which always, in one way or another, amounts to the defence or support of religion.

Marx and Engels defended philosophical materialism in the most determined manner and repeatedly explained how profoundly erroneous is every deviation from this basis. Their views are most clearly and fully expounded in the works of Engels, Ludwig Feuerbach and Anti-Dühring, which, like the Communist Manifesto, are handbooks for every class-conscious worker.

But Marx did not stop at eighteenth-century materialism: he developed philosophy to a higher level, he enriched it with the achievements of German classical philosophy, especially of Hegel’s system, which in its turn had led to the materialism of Feuerbach. The main achievement wasdialectics, i.e., the doctrine of development in its fullest, deepest and most comprehensive form, the doctrine of the relativity of the human knowledge that provides us with a reflection of eternally developing matter. The latest discoveries of natural science—radium, electrons, the transmutation of elements—have been a remarkable confirmation of Marx’s dialectical materialism despite the teachings of the bourgeois philosophers with their “new” reversions to old and decadent idealism.

Marx deepened and developed philosophical materialism to the full, and extended the cognition of nature to include the cognition of human society. His historical materialism was a great achievement in scientific thinking. The chaos and arbitrariness that had previously reigned in views on history and politics were replaced by a strikingly integral and harmonious scientific theory, which shows how, in consequence of the growth of productive forces, out of one system of social life another and higher system develops—how capitalism, for instance, grows out of feudalism.

Just as man’s knowledge reflects nature (i.e., developing matter), which exists independently of him, so man’s social knowledge (i.e., his various views and doctrines—philosophical, religious, political and so forth) reflects the economic system of society. Political institutions are a superstructure on the economic foundation. We see, for example, that the various political forms of the modern European states serve to strengthen the domination of the bourgeoisie over the proletariat.

Marx’s philosophy is a consummate philosophical materialism which has provided mankind, and especially the working class, with powerful instruments of knowledge.

II

Having recognised that the economic system is the foundation on which the political superstructure is erected, Marx devoted his greatest attention to the study of this economic system. Marx’s principal work, Capital, is devoted to a study of the economic system of modern, i.e., capitalist, society.

Classical political economy, before Marx, evolved in England, the most developed of the capitalist countries. Adam Smith and David Ricardo, by their investigations of the economic system, laid the foundations of the labour theory of value. Marx continued their work; he provided a proof of the theory and developed it consistently. He showed that the value of every commodity is determined by the quantity of socially necessary labour time spent on its production.

Where the bourgeois economists saw a relation between things (the exchange of one commodity for another) Marx revealed a relation between people. The exchange of commodities expresses the connection between individual producers through the market. Money signifies that the connection is becoming closer and closer, inseparably uniting the entire economic life of the individual producers into one whole.Capital signifies a further development of this connection: man’s labour-power becomes a commodity. The wage-worker sells his labour-power to the owner of land, factories and instruments of labour. The worker spends one part of the day covering the cost of maintaining himself and his family (wages), while the other part of the day he works without remuneration, creating for the capitalist surplus-value, the source of profit, the source of the wealth of the capitalist class.

The doctrine of surplus-value is the corner-stone of Marx’s economic theory.

Capital, created by the labour of the worker, crushes the worker, ruining small proprietors and creating an army of unemployed. In industry, the victory of large-scale production is immediately apparent, but the same phenomenon is also to be observed in agriculture, where the superiority of large-scale capitalist agriculture is enhanced, the use of machinery increases and the peasant economy, trapped by money-capital, declines and falls into ruin under the burden of its backward technique. The decline of small-scale production assumes different forms in agriculture, but the decline itself is an indisputable fact.

By destroying small-scale production, capital leads to an increase in productivity of labour and to the creation of a monopoly position for the associations of big capitalists. Production itself becomes more and more social—hundreds of thousands and millions of workers become bound together in a regular economic organism—but the product of this collective labour is appropriated by a handful of capitalists. Anarchy of production, crises, the furious chase after markets and the insecurity of existence of the mass of the population are intensified.

By increasing the dependence of the workers on capital, the capitalist system creates the great power of united labour.

Marx traced the development of capitalism from embryonic commodity economy, from simple exchange, to its highest forms, to large-scale production.

And the experience of all capitalist countries, old and new, year by year demonstrates clearly the truth of this Marxian doctrine to increasing numbers of workers.

Capitalism has triumphed all over the world, but this triumph is only the prelude to the triumph of labour over capital.

III

When feudalism was overthrown and “free” capitalist society appeared in the world, it at once became apparent that this freedom meant a new system of oppression and exploitation of the working people. Various socialist doctrines immediately emerged as a reflection of and protest against this oppression. Early socialism, however, was utopian socialism. It criticised capitalist society, it condemned and damned it, it dreamed of its destruction, it had visions of a better order and endeavoured to convince the rich of the immorality of exploitation.

But utopian socialism could not indicate the real solution. It could not explain the real nature of wage-slavery under capitalism, it could not reveal the laws of capitalist development, or show what social force is capable of becoming the creator of a new society.

Meanwhile, the stormy revolutions which everywhere in Europe, and especially in France, accompanied the fall of feudalism, of serfdom, more and more clearly revealed the struggle of classes as the basis and the driving force of all development.

Not a single victory of political freedom over the feudal class was won except against desperate resistance. Not a single capitalist country evolved on a more or less free and democratic basis except by a life-and-death struggle between the various classes of capitalist society.

The genius of Marx lies in his having been the first to deduce from this the lesson world history teaches and to apply that lesson consistently. The deduction he made is the doctrine of the class struggle.

People always have been the foolish victims of deception and self-deception in politics, and they always will be until they have learnt to seek out the interests of some class or other behind all moral, religious, political and social phrases, declarations and promises. Champions of reforms and improvements will always be fooled by the defenders of the old order until they realise that every old institution, how ever barbarous and rotten it may appear to be, is kept going by the forces of certain ruling classes. And there is only one way of smashing the resistance of those classes, and that is to find, in the very society which surrounds us, the forces which can—and, owing to their social position, must—constitute the power capable of sweeping away the old and creating the new, and to enlighten and organise those forces for the struggle.

Marx’s philosophical materialism alone has shown the proletariat the way out of the spiritual slavery in which all oppressed classes have hitherto languished. Marx’s economic theory alone has explained the true position of the proletariat in the general system of capitalism.

Independent organisations of the proletariat are multi plying all over the world, from America to Japan and from Sweden to South Africa. The proletariat is becoming enlightened and educated by waging its class struggle; it is ridding itself of the prejudices of bourgeois society; it is rallying its ranks ever more closely and is learning to gauge the measure of its successes; it is steeling its forces and is growing irresistibly.

Copy of the memorandum, submitted to Chief Minister by Left Front Legislators on 3rd June, 2011.

Leader of the opposition                                                  Legislative Assembly

                                       West Bengal

                                         Kolkata

 

                                                                       Date. 3rd June, 2011

 

Hon’ble

Smt. Mamata Banerjee

Chief Minister, West Bengal

Writer’s Buildings, Kolkata

 

 

Madam,

 

The Left Front Legislature Party of West Bengal Legislative Assembly takes note with deep concern of the fact that the widespread violent attack that started on Left Leaders, workers and supporters, Left Party and mass organizations offices, Panchayats, Municipalities and other elected bodies, educational institutions at all stages, clubs, other cultural organizations following declaration of 15th Assembly Election Results is being continued and getting extended to widespread areas. Twelve comrades have been brutally murdered in last twenty days following 13th May, 2011. More than 425 comrades had been grievously injured and admitted into hospitals. Many more had been denied rights to lodge complaint and get treatment inspite of being injured in these attacks. In certain places police was obstructed and being attacked while making attempt to rescue them. Two members of the present Legislative Assembly, Basudeb Mete and Sunil Mondal were not spared from this attack. A couple of women has been allegedly raped and more than hundred of them have been victims of outrage of modesty and physical attack. Around 412 Party offices were attacked, ransacked and looted, five of them were burnt. This number for Trade Unions offices in organized sector will be more than 65. Besides these more than 445 Party, Trade Union and Mass organizational offices were forcibly occupied with Trinomool congress flags hoisted over them. More than 157 offices were put under lock & key after driving out everybody working there.

 

Taking the plea of so called ‘Arms recovery’, some Party and Trade Union offices, the houses of Left leaders and workers were surrounded by people with Trinomool flags, breaking upon their doors, dramas of recovery of unusable arms from even offices under lock & key and adjacent areas were organized. A section of media were informed well before these dramas were staged. Such conspiratorial events were organized in presence of police in some places and even without them in others. The Left Leaders and workers were arrested under false cases even after thorough search of the offices conducted jointly Trinommol people and police failed to recover anything. In certain places our comrades were brutally beaten and handed over to the police after putting some sort of arms in their hand. Ceaseless attacks on party offices, houses , shops and other establishments continues in the name of victory rallies even three weeks after declaration of the election results.

 

The number of people evicted from their houses is around 7351 as per the reports received so far. Many more left their home to places unknown which is not covered in this report because of non availability of information. However, in all most all areas under attack people have been asked not to live their home, not even to communicate with anybody outside, to pay fine, surrender and join Trinomool rallies with their flag. The peoples’ courts are being set up for their trial.

 

Seven college union offices have been attacked. The elected members of students’ union are being forced to resign, from their offices and organization and change over their loyalty. The meeting of the Court of Kalyani University have been attacked. The elected members of Panchyats, Municipalities are forced to resign, resort to defection or do illegal works as per unwritten instructions under threat.

 

The attacks on livelihood of people, land and wages and at work places by way of not allowing them to join their work continues. It’s a matter of great concern that the recorded share cropper, patta holders and even rayats are denied their right to land and their crops.

 

The Left Front Leaders along with MPs and MLAs are not being allowed to visit many of these areas under attack. On one side such incidences are happening in presence of police, where as permission is denied to Left Front to conduct meeting and rallies in certain places.

 

The summary of aforesaid incidences so far collected inspite of lot of difficulties is annexed herewith.

 

Hope, you will agree that it is impossible to continue the development programmes without maintaining a democratic atmosphere, law and order and protecting the hard earned right, live, livelihood and security of the people. May be you would also feel that your positive utterances about the right of the opposition inside and outside the House and your instructions not to take law into own hand and interfere in the impartial work of the police administration are not being followed in practice. These are some of the urgent humane problems which cannot afford to wait for indefinite time without resolution. It will not be unjustified to demand that there should be significant improvement of the situation by the next week itself with the effective intervention on behalf of the State Government. 

 

                                          Thanking you,  

                                     

 Sd/- Surjya Kanta Misra

 

Sd/-Subhas Naskar

       Deputy Leader of the Opposition Party

 

Sd/- Biswanath Karak

        Chief Whip of the Opposition Party

 

 

Other Representatives of The Left Front Legislature Party

 

Sd/- Abdur Rezzak Molla, Sd/- Deblina Hembram, Sd/- Anisur Rahaman Sarkar, Sd/- Paresh Chandra Adhikari, Sd/- Probodh Chandra Sinha, Sd/- Id Mohammad, Sd/- Anandamoy Mondal, Sd/- Chand Mohammad

 

June, 2011