Moily writes to PM to defend gas price hike
Feb 24 2014 , New Delhi
Says scrapping KG deal with RIL not an option
The Manmohan Singh government also seems unwilling to oblige former Delhi chief minister and Aam Aadmi Party chief Arvind Kejriwal by putting off the gas price hike decision beyond April 1.
Petroleum minister Veerappa Moily has told prime minister Manmohan Singh that the government “cannot retract on its contractual obligations with RIL” nor can it scrap the deal with RIL for production and supply of gas from KG basin.
Moily gave a detailed explanation to the prime minister in a letter written in mid-February, spelling out the process followed by the government in fixing and periodically revising gas price.
Following a directive from Kejriwal, the anti-corruption department of Delhi police had registered an FIR against Moily, his predecessor Murli Deora and the then director- general of hydrocarbons VK Sibal.
Kejriwal had also written a letter to the prime minister, urging him to keep the decision to hike gas price to $8.4 per mmBtu in abeyance, pending the completion of investigations.
Moily has taken the position that the KG-D6 gas field contracts with RIL cannot be terminated, pending arbitration over reduced output vis-à-vis the contractual obligations undertaken by the company.
This 13-page letter written by the petroleum minister assumes significance as the AAP leader has made the gas price hike a major election issue.
While the contract provides for termination in case of default by a contractor, the oil ministry under S Jaipal Reddy in May 2012 had slapped a penalty of $1.005 billion on RIL for failing to produce natural gas in line with the pre-set targets.
RIL has taken the government to the international court of arbitration over this. Veerappa Moily has cited this case to reason that the gas field contracts with RIL cannot be rescinded pending settlement of this case.
The minister’s letter is a virtual rebuttal to all the charges leveled by Kejriwal before quitting as the Delhi chief minister. Moily is seen to be defending the government decision, which was based on the recommendation of an empowered group of ministers headed by finance minister P Chidambaram.
The Chidambaram panel cleared the proposal to double gas price following recommendations of an expert panel headed by former RBI governor C Rangarajan.
In his letter, Moily said several gas fields of both RIL and public sector explore Oil and Natural Gas Corporation (ONGC) had become economically unviable to produce gas at $4.2 per mmBtu.
Veerappa Moily has stated in the letter that investments in explorations and production of gas would be impacted by the pricing formula.
Moily has justified doubling of the gas price with the contention that the administered pricing regime was dismantled for petroleum products way back in 2002.
He argued that cost alone would not be the right basis and capital investments made to explore and develop these gas blocks should be factored into gas pricing.
On Sunday, kicking off AAP’s Lok Sabha campaign at a political rally in Rohtak, Kejriwal accused RIL and Mukesh Ambani of effectively funding both the Congress and the BJP.
He said the gas price hike would bring major hardships for the common man, as it would result in an increase in CNG price as well as power production cost.
In his letter to the prime minister, Kejriwal had said, “You are an expert of economics. You can understand that this decision to double gas price will have a cascading effect on the economy.”