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Product:  Site map  1......  .Free, Self help,   Haircare  aids     Site Map 2       R.Ranganathan M.Sc., [ MBA - IIMA]

R.Ranganathan M.Sc., [ MBA – IIMA]

8, Prathana Flats, off S.P.Nagar Road, Navrangpura, Ahmedabad 380009:    Phone 079-26404204

                                                                                                                                                                     October 10, 2009

 To All Concerned about

Terminating a Public Scandal and Ensuring Economical Use of Public Property

Subject:  Gradually unfolding KG Gas Marketing Scandal  

Present Status:   Mukesh Ambani fiddles, Anil Ambani rants, Government screens and NTPC wails

- Public has been brainwashed with slanted and questionable details

Highlights: Government should take over the KG Gas Field in Public Interest.  Besides ensuring Power Security, it would save the Public from getting looted minimum 20000 Crores per year for 17 years. The reasons for this conclusion are based on the following facts / analysis.

Pricing:

             The cost of production of Gas from KG basin is only 1.28 Dollars per mbtu. Approving a Sales Price of 4.2 Dollars per mbtu, at 3.28 times the cost of production, for basic item like Gas that can power the Nation ahead, is absurd, ridiculous and lacks balance 

                The Public, real owners of the Gas, have to pay for this arbitrary inflated price for 17 years and perhaps more.  They have to enrich the Ambanis, one or the other, by 58 Crores a day.  

      Indirect Tax, which every Indian pays, creeps into every item of daily use from early morning to night, be it match box, tooth paste, tea, sugar, cooking gas, newspaper, soap, vegetables, grains and pulses, fan, TV, empowered and unpowered ministers costs, the mosquito coil and whatever left that every Finance Minister unfailingly add with shallow excuses. We pay roughly 750 Crores per day – on Sundays too.

GOI-RIL Pricing Loot in Gas  - Arbitrary and Partisan 

                Crude after refining, is roughly about 80 Dollars for a 160 litres barrel – the cost of production is about 23 per litre.  If the Gas pricing rule of 3.28 is applied, the Sales price for Petrol should be 77 per litre. Let the Government do that and survive in office for a week, if possible.

Revenue Loss to Government – deliberate distorting and diversion 

                DGH published in Business Standard of 7^th October, 2009, Goldman Sach’s report on the Economics, as per the approved plan for KG basis gas sales. The projected figures are based on dynamic physical and cost estimates. It is not a static / stationery model and so, very relevant as of 2009.  

                The DGH’s advertisement exposes clumsy cover up, pervert logic and distortions to misguide the Public. One TCF means One Billion, mbtus. Price assumed is 4.2 Dollars per mbtu in their calculations 

                Missing 3.87 Billions / 18000 Crores: Gas Reserves is 10027 Billion Cubic Feet / 10.027 TCF.  The Revenue Generation has to be 42.11 Billion Dollars and not 38.3 that DGH states. Not bad at all, that 3.87 Billion Dollars / nearly 10% of potential revenue, has already got gasified into thin air 

                From the stated generated Revenue [38.3], if Profit Petroleum of [25.3] is deducted, the cost of Production comes to 13 billion Dollars. This expense for 10.03 TCF, means that the cost of production is, 1.296 Dollars only per mbtu against the 2003-2004 DGH’s estimate of 1.28 Dollars per mbtu. 

     If we add back, the missing / understated 3.87 Billion in the Generated Revenue, the cost of Production is 1.1 Dollars per mbtu. All the explanations floated by RIL and GOI now appear, shaky, deliberate distortions and misguidance. We are now talking with DGH’s edited figures of October 2009 and they raise new doubts and not answer the earlier basic questions.  

    Out of the total Profit petroleum figure of 25.3 Billions, Government’s share 16.57 and Reliance’s is 10.63. And the Government claims that it would earn more than Reliance – this is an unwanted diversion and at best, unwarranted assumption. Why ? If we add the share of these two, it comes to 27.2 Billions and not the stated, Profit Petroleum figure of 25.3 Billions. Even basic arithmetic is dubious.

Figures provided by Reliance –  cross check the DGH figures below

Government’s Profit is only 9.2 Billion  out of its total share of 17.8 Billion Dollars. The remaining 8.7 Billion is taxes and levies. 5% of total revenue is the Royalty. Rest is Excise, Sales and other levies.

Government’s deliberate Misguidance  - Multi Faceted High Risks, and pathetic Income 

                The Net Government take is 16.57 Billions for 13 years as per DGH advertisement.  That is, 1.2746 Billions per year and at Rs 47 to a Dollar, just 5990 Crores per year. And for a day, it is only 16 Crores.

    Murli Deora / Oil Secretary and empowered or otherwise Ministers mislead the Public with a bloated income generation from Reliance ? Relevant figure is the projected profit of 9.2 Billion in 13 years - that is 44160 Crores [ 48 to a dollar – early October]. The Profit per year is only 3396 Crores.

    The actual net profit is only 9.15 Crores per day.  Nothing fantastic to crow about or beat the breast after all the bungling.

                If you are an Income Tax / Direct Tax Payer, do you get any certificate of merit, accolade or say a glass of water, for the Indirect Tax that you have paid during the year ? 

Government collects about 750 Crores per day in Indirect Taxes. Government / Public can easily afford / suffer this notional loss if it gives them Gas and Peace in coming days

                Should a Government compromise its Power / Gas security, inflict inflated Gas Prices on the Nation, shoot up power bills of manufactured goods and sow Public discontent intentionally, even if we accept the16 Crores per day notional presumed gain ? It is stupid and lacks commonsense, business sense and political sense – power brokers can get away with anything for their personal greed

Reliance confirmation / confession about the Swindle  

                    Reliance said in reply to RNRL petition in the Supreme Court [Business Standard, 8^th October, 2009] that RNRL would make 21000 Crores Profit per year for 17 years, if it gets gas at 2.34 Dollars per mbtu and resells the Gas at market price of 4.2 Dollars per mbtu.  

                The figure is based on the difference of 1.86 Dollars per mbtu between the present sales price and petitioned / demanded lower price of 2.34 D/mbtu. 21000 Crores / about 4.375 Billion Dollars. They have the figures and must have thoughtfully provided it. [ Trust the Press to circulate it without probe ]

                 The Crucial Point is, if RNRL by chance does not make that amount, Reliance is going to earn minimum that amount is implied in Reliance statement. Reliance will sell that Gas. Perhaps more, because Reliance Production cost is only 1.11 Dollars per mbtu. That Government will get a share of this loot is a disgusting fact. And for that, they go overboard. It is like a Security fellow, for a few notes, leaks the details to robbers and pleads complete innocence. Changing Guard is the right option for future security 

                And as per an incredible and nonsensical commitment made by Government and confirmed to Business Standard by Mr. Prasad, Director of Reliance, the minimum floor price is 2.5 Dollars per mbtu and the cap is 4.2 till crude ranges from 25 to 60 Dollars per barrel.

The GSA for further confirmation 

                “The gas Sales Master Agreement provided that all Gas to be produced from existing and future discoveries from the blocks awarded to Reliance as on June 12, 2005, was to be shared between RIL and RNRL in the ratio of 60:40, which was also subject to Government approvals”.

                 Bombay High Court has already ruled that the ‘family MOU’ does not violate the Agreement between RIL and Government.  It indicates that the agreement between Government and Reliance is very faulty – perhaps a bit malleable to suit the interpretations of either one, as convenient and needed 

                RNRL may gain 21000 Crores per year as Reliance claims, if it wins the case. If it does not, that Gas will get sold by RIL and it will gain more than 21000 Crores.  

                Got it ? One of the Ambanis will anyway gain 58 Crores per day. There lies the Tragedy. But for the estrangement between the brothers, none of the details would have come to light. Government would have whitewashed the whole sordid background and not even attempted the present, clumsy, smoke screen diversions and distortions.

Power Security               

                Gas is a vital Raw Material for Power. It is a National Resource belonging to the People. It cannot and should not be reshaped as a ‘convenient Money Making Tool’ by the Ambanis. We are facing 18% peak power shortage in 2009 compared to 2008. The Cheaper and price bound, Iranian Gas is still 2500 Kilometres away after 5 years. Bush Manmohan nuclear agreement may provide 4500 Megawatts by 2017. It would take 35 years more to get 45000 Mega Watts from that source.  

                So, in whose interest, the Government is acting now ? God only knows.

Conclusion:

                     1] Government should take over the KG Gas Field and avoid the scope for anyone to earn 58 Crores per day. Finance Minister’s austerity measure should include this aspect also 

                2] Alternately, Gas can be priced at 2 Dollars or less per mbtu. Rate at which ONGC was supplying Gas till August 2009 

                3] 6 Directors of Reliance file affidavits before the Supreme Court declaring that the MOU was not put before the board, not approved and hence not binding on the Company. These actions convey the following 

                a] Chairman ignored the Board. That is Corporate Governance in practice. Is it prudent and safe to entrust with them, 10tcf / 42 Billion Dollars worth of Gas ?  

                b] Mukesh Ambani quoted the price of 2.34 Dollars per mbtu to NTPC in an International Tender. He did not refer to the Government or there was no Government for him. Today, he says, the project will collapse at any price below 4.2 Dollars per mbtu. Can we trust him ?  

                c] The Family MOU, brokered finally by their mother, after the initial but inconclusive spade work done by family well wishers for over a year, is known to the Public but not known to the Directors of Reliance! Can We believe them ?  

        The Chairman and the Directors are unreliable. Why risk the Gas ?  Pay them off and burn the Gas to Power the Nation Ahead.

R.Ranganathan 

3:17 PM, Sunday, October 11, 2009  

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