Paranjoy Guha Thakurta - Unnatural Gas (2010)
The Supreme Court judgement favoured one Ambani brother over the other, but it stridently disfavoured the government’s policy of privatizing the country’s natural resources
'We have heard a lot about free markets and freedom to market. We must confess that we were perplexed by the extent to which it was pressed that contractual arrangements between private parties with the State and amongst themselves could displace the obligations of the State to the people…History has repeatedly shown that a culture of uncontained greed along with uncontrolled markets leads to disasters..'
http://caravanmagazine.in/perspectives/unnatural-gas
Shekhar Gupta - National Interest: India Stinc (and the pepper spray MP)
'We have heard a lot about free markets and freedom to market. We must confess that we were perplexed by the extent to which it was pressed that contractual arrangements between private parties with the State and amongst themselves could displace the obligations of the State to the people…History has repeatedly shown that a culture of uncontained greed along with uncontrolled markets leads to disasters..'
The 51-year-old long-distance runner had always been the underdog in the bitter battle for control of India’s natural gas resources, but he had chosen to take on his elder brother and, with him, the might of the establishment. On that muggy morning of 7 May 2010, however, Anil Ambani realised that he would have to wait to fight another day.
Mukesh Ambani, barely two years older than Anil, was conspicuous in his absence. Mukesh’s lawyers—led by Harish Salve and including Abhishek Manu Singhvi (who doubles up as the official spokesperson of the Congress party when he is not in his black robes)—and his top executives were, predictably, exultant. A three-judge bench of the Supreme Court, led by outgoing Chief Justice of India KG Balakrishnan, had ruled in favour of the company that Mukesh heads, Reliance Industries Limited (RIL), India’s biggest privately-controlled corporate entity.
A short distance away, in Shastri Bhavan, Union Minister of Petroleum and Natural Gas Murli Deora, a close friend of the founder of the Reliance group, the late Dhirubhai Ambani, father of Mukesh and Anil, issued a terse statement even as his secretary gave more detailed answers. Deora, whom Anil had publicly accused of acting in a partisan manner and against the national interest in a series of newspaper front-page advertisements issued by his Reliance Natural Resources Limited (RNRL), merely said, “The gas belongs to the nation…not to any company or individual. The Supreme Court has upheld our stand.”
It was hardly surprising that RIL’s shares zoomed while the RNRL scrip crashed that Friday afternoon. But what neither Deora nor his senior bureaucrats told the media that day or thereafter was that the apex court’s judgment was more than just a victory for RIL, which is a widely diversified conglomerate that manufactures much of India’s synthetic fibres and textiles, petrochemical items such as plastics, refined petroleum products and, more recently, more than a third of the natural gas extracted from the Krishna Godavari (KG) basin, located in the Bay of Bengal off the coast of Andhra Pradesh. The judgement, which ran into 268 pages, was also a sharp indictment of the government’s policy of privatising control of the country’s natural resources.
The battle between the siblings has been likened to the Mahabharata, which was also about a dynastic struggle that led to a civil war. In 2000, the Ministry of Petroleum & Natural Gas signed a production sharing contract (PSC) with a consortium led by RIL for the exploration of hydrocarbons in the KG basin. In July 2002, Dhirubhai Ambani died intestate. In October 2002, RIL hit gas in the basin. In June 2004, RIL entered into an agreement with the Uttar Pradesh government to set up India’s—and Asia’s—largest gas-based power plant at Dadri, near Delhi, using gas from the KG basin.
Starting November 2004, for more than six months, the Ambani brothers engaged in a bitter public squabble. Only in June 2005 did they arrive at an uneasy settlement, supervised by their mother, Kokilaben Ambani, and divvied up the Reliance business empire: the gas business went to the Mukesh group while the Anil group got the power generation business. Since 2006, however, RIL and RNRL have been at loggerheads over the pricing and allocation of gas.
In September 2007, an empowered group of ministers headed by Pranab Mukherjee (then external affairs minister) approved a gas pricing formula mooted by RIL. In June 2009, the Mumbai High Court ruled in favour of RNRL, and asked RIL to supply gas to RNRL as per the original terms of the contract. It also urged the warring brothers to arrive at a “suitable arrangement” or turn to their mother for arbitration. Both companies then filed appeals in the Supreme Court, and the rest is—almost—history. The rivalry between two of India’s (and the world’s) richest men isn’t exactly over. If anything, a new chapter has begun. Though bruised and battered, Anil will not sit quiet; he has to prove his credentials as an entrepreneur who can set up successful green-field projects.
The Supreme Court judgement has highlighted important aspects of the lacunae in the Indian government’s policies on the utilisation of natural resources and ensuring energy security for the country. Paragraph 87 of the majority judgment delivered by Chief Justice Balakrishnan and Justice P Sathasivam says:
It is relevant to note that the Constitution envisages exploration, extraction and supply of gas to be within the domain of government functions. It is the duty of the Union to make sure that these resources are used for the benefit of the citizens of the country. Due to shortage of funds and technical know-how, the government has privatized such activities through the mechanism provided under the PSC (production sharing contract). It would have been ideal for the PSUs (public sector undertakings) to handle such projects exclusively. It is commendable that private entrepreneurial efforts are available, but the nature of the profits gained from such activities can ideally belong to the State which is in a better position to distribute them for the best interests of the people. Nevertheless, even if private parties are employed for such purposes, they must be accountable to the Constitutional set-up.
One might quibble with a sentence in the above paragraph, contending that it wasn’t on account of paucity of funds or inadequate know-how that the government allowed private players to enter the oil and gas exploration and extraction business. The PSUs—the Oil and Natural Gas Corporation (ONGC) and Oil India Limited (OIL)—could have raised the money and bought the technology had the government really wanted them to.
Perhaps more significant was the tirade unleashed by the minority judge, B Sudershan Reddy, on the ‘resource curse’ that afflicts India and other developing countries:
A small portion of our population, over the past two decades, has been chanting incessantly for increased privatization of the material resources of the community, and some of them even doubt whether the goals of equality and social justice are capable of being addressed directly. They argue that economic growth will eventually trickle down and lift everyone up. For those at the bottom of the economic and social pyramid, it appears that the nation has forsaken those goals as unattainable at best and unworthy at worst. The neo-liberal agenda has increasingly eviscerated the state of stature and power, bringing vast benefits to the few, modest benefits for some, while leaving everybody else, the majority, behind…
We have heard a lot about free markets and freedom to market. We must confess that we were perplexed by the extent to which it was pressed that contractual arrangements between private parties with the State and amongst themselves could displace the obligations of the State to the people…History has repeatedly shown that a culture of uncontained greed along with uncontrolled markets leads to disasters…Historically, and all across the globe, predatory forms of capitalism seem to organize themselves, first and foremost, around the extractive industries that seek to exploit the vast, but exhaustible, natural resources. Water, forests, minerals and oil—they are all being privatized; and not being satisfied, the voices that speak for predatory capitalism seek more…
As for government policy, the penultimate paragraph of Justice Sudershan Reddy’s judgment observes, “Before we part with the case, we consider it appropriate to observe and remind the GoI (government of India) that it is high time it frames a comprehensive policy/suitable legislation with regard to (the) energy security of India and supply of natural gas under production sharing contracts.”
It is evident that there are huge gaps in the country’s energy policy framework that have to be filled. The Union government has a legal right over the country’s resources and no private agreement, such as the one signed between the Ambani brothers and their mother in June 2005, can override such a sovereign right. But important questions remain unanswered, among which are: Is the government, as the custodian of the people’s resources, acting in a way that benefits the majority? Or are its policies primarily promoting powerful business interests? Have economic liberalisation and privatisation degenerated into forms of crony capitalism?
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