This page is about Krishna Godavari Gas / kg gas. The price that the Empowered Group of Ministers allowed Reliance meant

likely windfall profit to Reliance - at the cost of the Public because it is the Public who finally pay for every goods

Those interested in published background details should refer kg gas background

 

Why windfall profit ?

 

Presumed Total Income in 13 years, including Tax from Reliance / from KG Gas is 17.8 Billion Dollars, if gas is sold by Reliance at 4.2 Dollars per mbtu. Government is forcing ONGC to sell at 2.6 Dollars per mbtu. So the loss in Revenue is 16 Billions from ONGC. ONGC and Reliance are near equal gas suppliers. Net gain at best is only 1.8 Billion in 13 years

Shocker: As NTPC will take 20% of Reliance offtake, that is 2 tcf, Purchase by NTPC is 3.56 Billion at 4.2 Dollars / 1.8 times the tendered price by Reliance of 2.34 Dollars per mbtu. Government is forcing NTPC to pay 80% more - only 1.97 Billion More

If NTPC pays, it is Government / Public which is paying ultimately

Ultimate Net Loss is 0.17 Billion  

 [ Misleading gain 1.8 minus NTPC loss of 1.97 Billion ]

1] Gas Belongs to the People / Nation is what he said.

Paying about 2.6 Dollars mbtu to ONGC, a public sector undertaking [ real owners are the public ]

and arguing a price of 4.2 Dollars mbtu to Reliance, a private sector company'

which is controlled tightly by Mr. Mukesh Ambani [ 6 of the Directors shamelessly filed an affadivit in the Supreme Court that they do not know anything about the arrangement that Mukesh had with his brother and they never bothered to ask the details in the last 4 years ! Can we believe that ? ]

is suspect and arbitrary.

 

2] Presumed Profit is a fanciful statement and not backed by facts and figures so far

The argument that if Reliance sells at 4.2 Dollars per mbtu, the Government will earn 17.8 Billion Dollars in 13 years, is arithmetically stupid - about 6000 Crores per year

Hidden in that belated and laboured calculation, is the fact, what may be gained from KG Gas / Reliance will be lost by ONGC, its price being 1.6 Dollars cheaper.

That is, Government potential loss, by underpricing ONGC is 16 Billion Dollars, if the fellows who are now Minisiters claim that Reliance is not overpriced and 4.2 Dollars per mbtu is fair. This porous and cheap explanation is accepted,

Net Gain from Gas is only 1.8 Billion in 13 years: 17.8 Billion from KG minus ONGC loss of 16 Billion

ONGC and Reliance are near equal producers of Gas.

Reliance / Mukesh Ambani, is likely to be the only major gainer and not the Government.

Government's job is to run the Government justly and responsibly. If the above argument is accepted [ it is unfortunate that the media and many self styled experts, with superficial study of the figures and the terms, baselessly believe that it would benefit the Government / Public ]

why not a price of 6 or more Dollars per mbtu. The Government will earn more. Does it make sense ?

 

3] Government will actually pay more than what it hopes to gain, by deliberately misleading calculations

ONGC and Reliance are near equal sized sellers of Gas today - about 50% market share each. Because of this, gain if any from Reliance will be nullified by ONGC, due to arbitrary pricing mechanism

Gas is needed in bulk by Power and Fertiliser units. The Gas cost, even if it is 20 Dollars per mbtu, is going to be recovered by the Producers of Power and Fertilisers from the end users

Public is finally going to pay. Farmers are going to pay. Reliance would be on the scout for 3rd, 4th and 5th Foreign buy outs.

Government revenue will be actually negative from KG Gas

NTPC's offtake is likely to be over 20% of KG Gas production. Instead of 2.34, they are compelled to pay 4.2 Dollars per mbtu. That is, 1.86 Dollars more for mbtu.

Or, out of total expected revenue of 43.4 Billion Dollars by Reliance,

Government may shout about potential revenue of 17.8 Billion Dollars

but it is NTPC that would be contributing nearly 9 plus Billion Dollars to the revenue

 

4. Nation's energy security will be shaky as Reliance holds 50% gas reserve as of now

No Company can have / bid for more than 4 Super Thermal Power Plants, even if the total planned is 14.

Government ensures that no Company becomes a dominant power producer, there are several players and the risk is spread in the event of failure of one or more power plants or producing company

Should that not be applied with greater force to Gas, the raw material for Power / energy ?

As Lincoln said in Gettysberg, democracy means Government of the people, by the people and for the people. Unfortunately, the reality in India is Government off the people, far far from the people, by some vested with power, in good trust.

The power is misused to the detriment of the people at large.

It is also sickening that the other Pillars of the Democracy, notably the Media, keeps mum and does not raise the voice in time.

 

	Errors and Omissions exempted.  If there be any unwanted oversights, mistake in content or suggestions for improvements,  I will be thankful for your feedback
	Personal website of R. Ranganathan M.Sc., [ MBA - IIMA]    Main / original content: 2009: last minor modification, Aug 20,  2011