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Whisky On The Rocks?
(Indian Oil & Gas, April 10, 2011 issue)
The question in the headline is a deliberate one -- and no, we haven’t
turned into scandal mongers. The metaphor will be explained in a bit.
Watchdogs are usually a nuisance but everyone’s terrified of the hound.
These days in Delhi, the hound goes by an acronym: CAG (the Comptroller
and Auditor General of India).
Last November, the hound in its 96-page report on 2 G spectrum
allocation convulsed the political firmament: disgraced telecom minister
Andimuthu Raja has been forced out of office and is currently cooling
his heels in Tihar jail along with his buddies-in-crime. With a
chargesheet filed against them by the Central Bureau of Investigation
(CBI), more trouble awaits them.
But there’s one place that even the hounds can’t go – and that is
Petronet LNG Ltd. For all practical purposes, this entity is government-
controlled. Since inception, it has been headed by the secretary in the
ministry of petroleum and natural gas. Moreover, 50 per cent of its
equity capital is held by four oil and gas PSUs: ONGC, IOC, BPCL and
GAIL. Even as it enjoys the tough shield of protection afforded by its
state-owned stakeholders and a government of India secretary, it
operates technically like a private company – a unique arrangement that
works wonderfully for everyone.
PLL’s dealings run into billions of dollars every year and anecdotal
evidence indicates that there’s no business that can whip up gargantuan
kickbacks like LNG. The mechanism is built into the system and even
honourable men are sucked into the maw of this grubby money-making
machine.
The latest buzz in the petroleum industry is the 1.4 million ton LNG
import contract that Petronet LNG struck with the Gorgon Project of
Australia two years ago to provide supplies to its upcoming LNG terminal
at Kochi.
The price that was negotiated, and finalised subsequently, looks so high
that marketer GAIL is finding it difficult to sell the gas. NTPC, which
was believed to be the single biggest consumer of the imported LNG for
its power plant at Kayamkulam, is insisting on a price rollback. Until
that happens, it has no plans to sign a sale purchase agreement. GAIL is
now in a fix since it had entered into a back to back agreement with
PLL.
We do not want to use journalistic expressions like scam or bungling. In
terms of scale, the LNG fiasco doesn’t come anywhere near Raja’s 2G
spectrum scam.
It cannot be called bungling either as the expression has an element of
non-intention which we are not prepared to believe. It certainly is a
deliberate deal that is shaping into a scandal.
PLL is the brainchild of Dr Vijay Kelkar, the then petroleum secretary,
who believed that for an undertaking to function effectively, it should
be freed from the clutches of enforcement agencies. Kelkar had noble
intentions but his grand plan was subverted by the minions who came
after.
Kelkar had wanted K.K. Kapoor, the then CMD of GAIL, to head it. Kapoor
is a financial disciplinarian who, along with Vineet Nayyar, turned GAIL
into an efficiently-run PSU. It is a different story that Kapoor -- who
did not have the gracious art of entertaining senior bureaucrats in
five-star hotels – did not get to head PLL when it was formed.
The price of LNG is linked to that of crude. If the price of crude is $
100 per barrel, the gross price of LNG in Australia will be $ 14.6/mmbtu
which means the net price in Australia should be $ 16.1/mmbtu. If you
add in other charges for transportation, customs duty, re-gasification
etc, the delivered price of gas rises to $ 20/ mmbtu. Had it been
sourced from Qatar, on the basis of the existing arrangement, the
delivered gas would not have cost more than $ 15.6/mmbtu.
The facile explanation that is being trotted out now is that Qatar did
not have an LNG surplus when the Gorgon deal was negotiated. It does
now. But it does beg the question: why was there such a tearing hurry to
wrap up the deal at a time when global crude prices were ruling high?
Qatar’s petroleum minister had gone on record in Delhi saying that he
was prepared to meet the total “requirements of his good friend Murli
Deora”, who was India’s petroleum minister at that time. Shell and GSPC
bring cheaper LNG to India through the Hazira terminal.
There is no one who is prepared to own up to the snafu. So, the
bureaucrats have now come up with a brilliant plan to paper over the
cracks. It’s called price pooling. The basic idea is that the
outrageously expensive LNG from Australia can be blended with cheaper
domestic gas so that the average price becomes affordable for everybody.
That brings us to the metaphor in the headline: the deal makers have
walked off with the scotch whisky, leaving the marketers with a lot of
soda that has clearly lost its fizz. They can neither gulp it down nor
persuade the others to buy it off them.