This one has all the ingredients of a potboiler. It involves one of the most prolific gas reserves discovered in India, playing an important role in the face-off between the two Ambani brothers, splitting the already divided Congress ruled United Progressive Alliance government into camps, claiming the career of former director general of hydrocarbons V.K. Sibal, and also in some ways leading to the exit of petroleum minister Murli Deora.
Gas production from the Mukesh Ambani-controlled Reliance Industries Ltd’s (RIL’s) D6 block on India’s eastern coast was supposed to lead to several benefits, including clean energy, huge public revenues, and a reduction in the oil import bill. The reality is turning out to be different.
Production from the “prolific” reservoir, hailed as the world’s largest natural gas discovery in 2002, is steadily falling. The current production is around 37 million standard cubic metres per day (mscmd) when it should have been 80 mscmd. It is projected to further dip to 27.6 mscmd in the next fiscal (2012-13) and 22.6 mscmd in 2013-14. While this falling production is not only affecting the government’s share in profit petroleum, it has also led to a squeeze in supplies to power plants, fertilizer units, petrochemicals, automobiles, and household cooking and heating, thereby affecting the profitability of all the businesses that have made investments based on firm commitments made by RIL to supply gas. Even as the hydrocarbon exploration and production is not known to be an exact science, someone should be held accountable for these stranded assets.
The fall in production is a further blow to a faltering economy and has also exacerbated India’s power crisis. While the projected gas production would have helped the country meet its 10.2% peak shortage, the changed scenario has led to no new natural gas-based capacity being planned in the country. With the fertilizer companies cutting back on production, supply to the farmers will be affected. Consumers of compressed natural gas and pressurized natural gas have already been subjected to price hikes as companies have resorted to expensive imported liquefied natural gas to meet shortfalls.
The falling production comes amid demands for increasing the gas prices from the present $4.20 per million British thermal unit (mBtu). The public accounts committee of parliament has already started questioning top executives of RIL about cost escalations in the D6 block, and the alleged contract violations after the Comptroller and Auditor General of India, the national auditor, stated that RIL had breached the terms of a production-sharing contract (PSC) with the government.
The CAG also said the current PSC template encouraged firms to front-load expenditure as it correspondingly reduced the share of the government in profits and commented on the practice of RIL implementing the work programme even before obtaining approval for increased project costs.
India’s federal investigating agency has been considering registering a case against those responsible for the alleged irregularities --- since September. It is high time action was taken without any further delay.