Letters From Tapan Sen

APAN SEN"tEMBER OF PARLIAMENT

(RAJYA SABHA)

[R : STANDING COMMITTEEON PETROLEUM & NATURAL GAS

'8ER : CONSULTATIVE COMMITIEE FORMINISTRY OF STEEL

£MBER : COMMITIEE ON PUBLICUNDERTAKINGS (COPU)

16th January 2012

OFFICE' 13-A. ROUSE AVENUENEW DELHI-11 0002

PHONE. 23221288. 23221306FAX: 23221284

RESIDENCE: 501. V P HOUSE,RAFI MARG. NEW DELHI-110 001

Tel: 23766546 Mobile: 98681 81055E-mail: [email protected]

Dear Dr Manmohan Singh Ji,

Kindly refer to my letter dated io" October 2011 requesting you to kindly get naturalgas pricing methodology critically examined by CAG,which has led to upsurge in pric~ ofindigenously produced gas without any linkage to its actual production cost. You"mayrecall, the price of natural gas was decided by the EGoMconstituted for the purpose inthe context of the "price discovered" by Mis Relianceand proposition made thereon",.

Unfortunately, I am not aware of any action being taken in that regard although thesame had been an urgent necessity. Almost Simultaneously and disturbingly enough, itis learnt that demand for further raising the price of natural gas is being made by themajor contractor in KGD6field. And such demand is also accompanied ostensibly with acalculated scaling down of production of natural gas from KGD6field by the contractorin violation of the contract on a non-verifiable plea of 'geological complexity'.

You are aware, the production of natural gas from KGD6 has come down from 45 tocurrently 38 mmscmd vis-a-vis the contractual commitment of 70 mmscmd. This;' youwill appreciate, has caused a direct loss to the country's energy economy of aroundRs15000 crore even going by a most conservative estimate, if only the cost differentialof alternative feedstock by the gas-consuming sector is taken into account. The indirectloss, obviously, is much more.

It is expected of the contractor handling the natural gas reserve to scale down theproduction of gas from KGD6 for achieving a premature price-rise from the Govt as apressure-building tactics. But at the same time, it is also expected that the Govt wouldappropriately respond to such coercive tactics and decide as to whether the concernedfield should continue to remain at all under the very contractor which is in perpetualdefault in terms of contract in the matter of production commitment. I understand, theGovt is very much empowered to make such review under the terms of contract. And Ibelieve, such review is warranted in the interest of the nation.

I, therefore, urge upon you to please appreciate the gravity of the issue and interveneso that the entire contract related to KGD6 is reviewed in view of serious defaultcommitted by the contractor.

With regards,

l1i=~,(TAPAN SEN)

Dr Monmohan SinghPrime MinisterGovt of IndiaNew Delhi

C-1. Prateekee Abasan. 109 Ultadanga Main Road, Kolkata - 700 067

TAPAN SENMEMBER OF PARLIAMENT

(RAJYA SABHA)EMBER: STANDING COMMITTEE

ON PETROLEUM & NATURAL GASMEMBER: CONSULTATIVE COMMITTEE FOR

MINISTRY OF STEElMEMBER: COMMITTEE ON PUBLIC

UNDERTAKINGS (COPU)

'OFFICE : 13-A, ROUSE AVENUENEW DELHI-110002

PHONE: 23221288, 23221306FAX.: 23221284

RESIDENCE: 501, V P HOUSE,RAFI MARG, NEW DELHI-110 001

Tel: 2376 6546 Mobile: 9868181055E-mail: [email protected]

th February 2012

Dear Dr. Manmohan Singhji,

Further to my letter dated 16th January 2012 seeking your intervention on production sharingcontract related to KGD6 in view of serious default committed by MIs RIL, the contractor, I amconstrained to invite your kind attention to followi~ extract(para 63) of the historic judgment bythe Hon'ble Supreme Court on 2G Spectrum on Z" February 2012:

In Reliance Natural Resources Limited v. Reliance Industries Limited, (2010) 7 SCC 1,P.Sathasivam J. with whom Balakrishnan, C.J., agreed, made the following observations:

"It must be noted that the constitutional mandate is that the natural resources belong tothe people of this country. The nature of the word "vest" must be seen in the context ofthe public trust doctrine (PTD). Even though this doctrine has been applied in casesdealing with environmental jurisprudence, it has its broader application."

Learned Judge then referred to the judgments In re Special Reference No. 1 of 2001(2004) 4 SCC 489, M.C. Mehta v. Kamal Nath (1997) 1 SCC 388 and observed:

"This doctrine is 'part of Indian law and finds application in the present case as well. It isthus the duty of the Government to provide complete protection to the natural resourcesas a trustee of the people at large."

The Court also held that natural resources are vested with the Government as a matter oftrust in the name of the people of India and it is the solemn duty of the State to protectthe national interest and natural resources must always be used in the interest of thecountry and not private interests.

In view of above reiteration of Hon'ble Supreme Court on the duty of the state to protect thenational interest vis-a-vis natural resource, I urge upon you again to please intervene in thecase immediately so that reasonable price of natural gas is ensured in national interest and notfor private interest. As a matter of fact pricing of natural gas should be re-examined de novo byCAG based on actual cost of production at KGD6.

With regards, incerel•.

(TAPAN SEN)Dr. Manmohan SinghPrime MinisterGovernment of IndiaNew Delhi

C-1, Prateekee Abasan, 109, Ultadanga Main Road, Kolkata - 700 067

fAPAN SENMEMBER OF PARLIAMENT

(RAJYA SABHA)

BER: STANDING COMMITTEEON PETROLEUM & NATURAL GAS

jEMBER: CONSULTATIVE COMMITTEE FORMINISTRY OF STEEL

MEMBER: COMMITTEE ON PUBLICUNDERTAKINGS (COPU)

OFFICE: 13-A, ROUSE AVENUENEW DELHI-110002

PHONE: 23221288, 23221306FAX: 23221284


Tel: 23766546 Mobile: 98681 81055E-mail: [email protected] March .2012

Dear Dr. Manmohan Singh ji,

There are disquieting media reports about PMO's intervention on MIs. RIL's plea forupward revision of KG 06 gas price of 4.2 dollar/mBtu. This price itself was fixedquite arbitrarily, hurting the interest of NTPC, a public sector power enterprise ofglobal repute, which had been pointed out time and again to you by the undersigned.

2. The intervention, if true, appears to be unsolicited as Ministry of Petroleum hadalready on record rejected this unjustified plea by MIs. RIL as KG 06 gas price isvalid for five years till 2014. As a matter of fact RIL's similar appeal was turned downin 2010 by EGOM, headed by Finance Minister. As you are kindly aware, price hikein natural gas will lead to more govt. subsidy in fertilizer as well as higher power tarifffor consumers. It is therefore quite perplexing that while the govt. is on one handcrying hoarse on subsidy, PMO is reportedly asking Ministry of Petroleum to reopenthe issue of pricing of KG 06 gas, ostensibly under the pressure of MIs. RIL.

It is not clear as to what public interest prompted such reported interventionby PMO.

3. It is further shocking that RIL's record as a contractor of KG 06 gas field hasbeen totally ignored before the intervention by PMO/EGOM. In this connection,please refer to reply of Ministry of Power, in Parliament on 20.02.2009

"NTPC invited bids under International Competitive Bidding for procurement ofnatural gas @ 132 trillion British thermal units per annum for Kawas-II and Gandhar-II power projects for a period of 17 years. Reliance Industries was evaluated as thelowest techno commercially acceptable bidder and NTPC accepted its offer.Accordingly a Letter of Intent (LOI) was issued to RIL on 16.06.2004 which was dulyacknowledged and confirmed by RIL. After the issuance of LOI, RIL did not comeforward to sign the Gas Sale and Purchase Agreement (GSPA) and sought majorchanges in the agreed draft of GSPA. NTPC pursued with RIL at various levels andvarious meetings to sign the GSPA, as per the draft accepted by RIL during thebidding process. However in spite of all the efforts RIL did not sign the GSPA agreedduring the bidding process."

. NTPC ultimately had to file a suit as aggrieved party in Bombay High Court inDecember 2005 to get the gas at 2.34 dollar per unit for 17 years. The case isstill subjudice and 2600 mw power-generation still remains elusive.

4. As on date, production from KG 06 field is less than 40 MMSCMO againstassured 80 MMSCMO, and the reason has been explained by Shri Jaipal Reddy,Minister of Petroleum and Natural Gas in his letter to the undersigned on yth of thismonth, as quoted below.

contd ....2

C-1, Prateekee Abasan, 109, Ultadanga Main Road. Kolkata - 700 067

fAPAN SENMEMBER OF PARLIAMENT

(RAJYA SABHA)

BER; STANDING COMMITTEE, ON PETROLEUM & NATURAL GASJEMBER; CONSULTATIVE COMMITTEE FOR

MINISTRY OF STEELMEMBER; COMMITTEE ON PUBLIC

UNDERTAKINGS (COPU)

liAs regards the decline in the production of gas from KG 06 field, DirectorateGeneral of Hydrocarbons (DGH) has reported that the reasons for decline in gasproduction is due to drilling of only 22 wells (18 gas producing wells and 4 wellsdrilled but not connected or put on production) as against 31 producing wellsapproved for drilling up to March, 2012 according to Field Development Plan (FOP).The Contractor has expressed inability to firm up appropriate drilling locations on theplea of geological complexity. OGH has not agreed to the Contractor's contentionand asked the Contractor to comply with the approved FOP. In addition, five out oftotal 18 gas producing wells in 01 and 03 fields have ceased to produce gas due towater-loading/sand ingress in the wells. One oil/gas producing well in MA field out of6 oil/gas producing wells has ceased to produce oil/gas due to water loading in well.II

OFFICE: 13-A, ROUSE AVENUENEW DELHI-110002

PHONE: 23221288, 23221306FAX: 23221284

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Tel: 2376 6546 Mobile: 98681 81055E-mail: [email protected]

Obviously by cutting down the production, the contractor is trying to arm-twistthe govt. to increase the gas price...)

In view of the above you will agree that PMO owes a reply to the nation as to whyinstead of penalising RIL, the contractor for its acts of omission/commission, achannel is being opened for rewarding RIL through a price hike, irrespective of actualcost of production of KG 06 gas. I request you to kindly advice the PMO accordingly.

With regards, ~;:~(TAPAN SEN)

Dr. Manmohan SinghHon'ble Prime MinisterGovt. of IndiaNew Delhi

Copy to: Shri Jaipal Reddy, Minister of Petroleum & Natural Gas, G,=o...--r,"'I";:l( APAN SEN)

MEMBER OF PARLIAMENT(RAJYA SABHA)

BER: STANDING COMMITTEEON PETROLEUM & NATURAL GAS

~MBER: CONSULTATIVE COMMITTEE FORMINISTRY OF STEEL


Dear Dr. Manmohan Singhji,

fA A SE OFFICE: 13-A. ROUSE AVENUENEW DELHI-110002

PHONE: 23221288. 23221306FAX: 23221284

RESIDENCE: 501. V P HOUSE.RAFI MARG. NEW DELHI-110 001


31st March 2012

This has reference to your DO letter dated 23.3.2012 acknowledging receipt of my letter dated21.3.2012. regarding PMO's reported intervention on M/s RIL's plea for increase in KGD6 gasprice.

2. In this connection it is gratifying to note that the Ministry of Petroleum and Natural Gas hasagain reconfirmed its stand on the issue vide reply to unstarred question no. 1509 dt 27.3.2012in Rajya Sabha wherein it has been stated:

6n 6th September 2010, Reliance Industries Ltd. (RIL) represented to this Ministry thatthey have an offer for purchase of gas at higher rate than the rate approved by the EGOMand they sought guidance and as to how to proceed as per the PSC. RIL was informedthat EGOM has approved the above price for 5 years from the date of commencement ofsupply and RIL was instructed to comply with the price finalized by EGOM. //

3. In view of the above any decision to revisit the gas price before five years i.e. 2014 under thepretext of "Pricing policy reforms to incentivise production' of natural gas", I am afraid,would be perceived as backdoor manoeuvre under the pressure of private gas producers, bothdomestic and foreign. PMO's reported advice for seeking government legal opinion on midtermprice correction is in sharp contrast to its unsympathetic and "touch me not" attitude togovernment owned enterprises. It was not felt prudent by the government either to seek LawMinistry's opinion or to give legal support to the cause of NTPC, a Mahartana PSU when RILwent back on its offer to supply natural gas @ 2.34 dollar per unit for 17 years. NTPC is stillfighting the case in High Court on its own. Level playing field warrants that if M/s RIL feelsaggrieved on the present gas price, It should seek legal redressal on its own and it is not for theGovernment to explore possibilities to bailout M/s RIL or BP. This discriminatory approachbecomes more glaring when PMO directs Maharatna PSU Coal India to sign Fuel SupplyAgreement for 20 years with guaranteed delivery of 80 % contracted quantity of coal, whileremaining conspicuously unreactive on "mysterious drop in KGD6 gas production" and beingproactive to the unreasonable demand of price hike hefore the stipulated period of 5 years in2014.

I shall be grateful if you kindly clarify whether the actions/interventions by PMO to go out of theway to help private gas and power producers have your approval. I also sincerely hope that forthe sake of energy security, you will kindly ensure that pricing of natural resources like gas orcoal within the country and owned by the people of this country, is not dictated by domestiC/foreign investor or hedge fund operator. from abroad.

With kind regards ~;:l.~lNSEN)

Dr. Manmohan SinghPrime MinisterGovernment of IndiaNew Delhi

C-1. Prateekee Abasan. 109. Ultadanaa Main Road. Kolkata - 700 067

___"TAPAN SEN/


MEMBER: STANDING COMMITTEEON PETROLEUM & NATURAL GAS

MEMBER: CONSULTATIVE COMMITTEE FORMINISTRY OF STEEL


OFFICE: 13-A, ROUSE AVENUEN'EW DELHI-110002

PHONE: 23221288, 23221306FAX: 23221284



r•

16th May 2012Dear Dr. Manmohan Singhji,

Thank you for your letter dated 09.05.2012 in response to my letter dated 21.03.2012 regarding PMOintervention on M/s RIL's plea for upward revision of KG-D6gas price of 4.2 dollar/rnbtu.

It is unfortunate that instead of addressing any of the' substantive issues raised in my letter which wasfollowed by another letter dated 31.03.2012, your letter formally accepts that a letter from M/s Reliancewasreceived by PMO and forwarded to Ministry of Petroleum & Natural Gas for obtaining legal opinion on thematter and placing it before EGoMon gas pricing.

The above fact was well known but my substantive query as to what public interest prompted the,agenda of MIs Reliance to increase the gas price to be sent for legal opinion, when the same wasalready turned down by MOPNG,remains unanswered. As a matter of fact, you will kindly appreciate, thisintervention and subsequent sequence of events are serious acts of omission in the face of desperate bid bythe private party to make illegitimate gain before the expiry of the tenure of the present price at the cost ofnational exchequer and millions of power & fertililser consumers.

1. RIL contractor's plea was turned down by EGoMin 2010. The present plea for price hike of gas wasturned down by Ministry of Petroleum. The same was pointed out to you in my subsequent letter dated31st March wherein the following reply to unstarred question 1509 dated 27.03.2012 in Rajya Sabha byMinistry of P&NGwas speciflcallv referred:

"On 6th September 2010, Reliance Industries Ltd. (RIL) represented to this Ministry thatthey have an offer for purchase of gas at higher rate than the rate approved by the EGoMand they sought guidance and as to how to proceed as per the PSC.RIL was informed thatEGoMhas approved the above price for 5 years from the date of commencement of supplyand RIL was instructed to comply with the price finalized by EGoM."

2. Obviously, the above assurance to Parliament to stick to five years agreement i.e. till 2014 by theministry of petroleum cannot be overruled by PMO through review of the case by obtaining a legalopinion. Under the circumstances, reopening the matter for legal opinion constitutes an actof omission.

3. I had also clearly pointed out in my letter dated 21.03.2012 that RIL's previous record as a contractoron KGD6gas field vis-a-vis 2600MW NTPCplants of Kawas & Gandhar in Gujarat in year 2004 cannotbe ignored. In an identical fashion RIL had first agreed to supply gas @ 2.34 dollar/rnbtu for 17 yearsand later retracted and did not sign the Gas sale and Purchase agreement. This led to suspension ofwork on power plants till now.

Neitherthe Ministry of Power nor PMO intervened in that case to get a legal opinion so that the PSUcould get the gas from KGD6. NTPC had to approach the Bombay High Court. The case is still subjudice.

Contd/ - to page 2

C-1, Prateekee Abasan, 109 Ultadanga Main Road, Kolkata - 700 067

TAPAN SEN OFFICE: 13-A, ROUSE AVENUENEW DELHI-110002

PHONE: 23221288, 23221306FAX: 23221284


AEMBER : STANDING COMMITTEEON PETROLEUM & NATURAL GAS

MEMBER: CONSULTATIVE COMMITTEE FORMINISTRY OF STEEL


But in the instant case, intervention made makes the case, which was turned down byMoPNG, reopened for a review through legal opinion and RIL stands unduely advantaged ifnot favoured to the extent that unlike NTPC, the contractor does not have to spendmoney and time through litigation. It has paved the way for RIL to find an alternative to stake itsdubious claim for price hike of natural gas.

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Tel: 23766546 Mobile: 98681 81055E-mail: [email protected]

4. Further hike in price of natural gas will lead to high power tariff for millions of consumers and moregovernment subsidy in fertilizer. Despite that, the contractor's bid of seeking a review of gas pricefixed by EGoMfor five years at 4.2 dollar till 2014 has been allowed to be reopened after it was turneddown by MoPNG.You may kindly appreciate that --not considerinq the following facts also constitutesan act of omission in the instant case:i. RIL had quoted 2.3 dollar/motu to NTPC'saforesaid plants of NTPCfor 17 years.ii. In Oman, the Indian fertilizer companies KRIBHCO and IFFCO get gas from Oman India Oil

Company @ 0.77 dollar/rnbtu since January 2006 which has recently been increased by 15% after6 years. The tenure of gas supply agreement (GAS) between Oman Oil Company and fertilizercompanies is for 15 years from January 2006 to the year 2020, while RIL is seeking review of priceafter 3 years!

iii. As for pricing, Oman is not insisting for international price of LNG for bench-marking theirindigenous gas production. It may also be noted that in Canada the domestic gas price was only1.74 dollar/motu. Hence any attempt to increase the domestic gas price on the plea ofinternational price can only be construed as a mischievous means to propel the interest of theprivate contractor at the cost of government exchequer and power / fertilizer consumers.

iv. As on date, production from KGD6 field is 34MMSCMD as against assured 80 MMSCMD,forreasons attributable to the contractor as pointed out in CAG report on KGD6. Obviously bydeliberately cutting down the production, the contractor is trying to arm-twist the government toincreasethe gas price.

Instead of a charade of legal opinion through Attorney General or Solicitor General I urge upon you tokindly take following action immediately.

a) Tariff commission should be asked to assessthe actual cost of production of natural gas in KGD6.b) Simultaneously, the plea of RIL should be forwarded to CAGfor examination.

I demand that no price hike should be allowed to MIs RIL irrespective of legal opinion before theexpiry of contract period of 5 year l.e, before 2014 and the gas price of KGD6 be examineddenovo after the report of Tariff Commission and CAG are received.With regards,

bt:t:(TAPAN SEN)

Dr. Manmohan SinghPrime MinisterGovernment of IndiaNew Delhi

C-1. Prateekee Abasan. 109 Ultadanga Main Road, Kolkata - 700 067

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