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Home >Opinion >Online-views >Arvind Kejriwal: the hydrocarbon regulator

Even the theatrics are not interesting any more. The substance of governance that residents of Delhi so badly desired was never there. On Tuesday, in another round of media-fuelled entertainment, Delhi chief minister Arvind Kejriwal ordered the filing of a First Information Report (FIR) against Union oil minister M. Veerappa Moily, former Union oil minister Murli Deora, Mukesh Ambani, chairman of Reliance Industries Ltd (RIL), and former director general of hydrocarbons (DGH) V.K. Sibal. The allegation: collusion in the fixing of natural gas prices for the output from RIL’s KG-D6 oil block in the Bay of Bengal, off Andhra Pradesh.

What prompted this crusading chief minister to take on some of the most powerful men in India? Believe it or not, the complaint of some “eminent men and women" who felt the Union government was doing nothing to end this alleged wholesale plunder of a vital natural resource.

This is one more example of the chief minister’s lack of clarity about how the government really works: decisions about oil and gas pricing are taken by the Union government and state governments have no role in the process. One cannot be party to a complaint when one is not involved in the decision-making process or a contract that allowed RIL to explore and exploit natural gas.

The key allegation that Kejriwal made was the Union government allowed for a doubling of natural gas price from the current $4.2 per million metric british thermal units (mmbtu) to $8.4 mmbtu from 1 April this year. This was done, allegedly, by collusion between RIL and government officials and ministers. He further alleged that there was virtually no link between the cost of production of this gas and the final sale price.

The gas problem

On the face of it, all these points appear justified. The problem, as with all such complaints, is they suggest no other alternative.

The two other choices are:

* To let prices be determined wholly by government fiat.

* Letting market demand and supply determine prices.

The first option, the likely choice of a party like the Aam Aadmi Party (AAP) that has strong faith in the powers of government, will create more problems. After all, the raising of gas prices for RIL’s output from the current $4.2 mmbtu to $8.3 mmbtu was a government decision taken at the highest level—the Union cabinet.

If the second option is exercised, no one would be better pleased than RIL. The Indian economy is growing fast and the demand for energy is fast outpacing its supply. In the five years from 2012-13 to 2016-17, the demand for natural gas is expected to jump from 286 mmscmd to 466 mmscmd—a 63% increase in a five-year span. With galloping demand and control over the largest chunk of this resource, RIL’s profits—a dirty word in AAP’s lexicon—will only multiply manifold.

So some government intervention—both to protect industrial consumers of RIL’s output and also regulate this huge conglomerate—is essential. The problem lies with the vastly imperfect manner in which this intervention has taken place. It is easy to yell that corruption has crept into the entire process—from the level of the directorate general of hydrocarbons to the Union cabinet—but can Kejriwal and his party suggest an alternative?

The Kejriwal problem

Imagine if RIL were indeed brought to book, the KG-D6 field snatched away from it and handed over to a public sector company to extract natural gas. What will happen? In the AAP worldview, all will be well: the country’s resources will remain with the country (after all the government is the country.) and consumers will get cheap gas for as long as the field can spew it out.

Wrong.

Public sector companies lack the technical wherewithal to operate hydrocarbon fields that are located in geologically complex regions where natural conditions make it hard to exploit these resources. This calls for money and a great deal of geological and exploration expertise that our public sector companies don’t have. Even RIL does not have that. But it has one big advantage: it can partner with global oil and gas exploration giants who have experience in working under some of the toughest environmental and geological conditions on the plant.

As elsewhere (for example, his government’s diktat on water and electricity pricing), Kejriwal does not realize one basic economic fact: cheaper a commodity, the higher will be its demand. In case of manufactured goods, competition between different producers keeps prices in check. But natural resources are exhaustible, the cheaper they are, the faster they will be consumed. What will happen the day they are exhausted? Where will India source its energy supplies from? Even today the vast bulk of our energy requirements are met by imported oil and gas. It is rational to allocate these resources on the basis of their most prudent use and not on the basis of their ability to garner votes in an election to the Lok Sabha.

This seems to have escaped the comprehension of Kejriwal & Co. A combination of belief in government’s ability to do anything, ignoring of economics and vast political ambition makes complicated problems like oil and gas pricing a readymade opportunity to remain in the news.

The gas-pricing issue has remained controversial right from the point when the KG-D6 block was handed to RIL. The real problem is how to solve the tangle of pricing natural gas. It is unlikely that an inspector of police, armed with an FIR, can sort this problem. An ambitious chief minister will only deepen the mess.

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