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Regulation
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Companies
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Press Release [FREE Access]
Petro Intelligence » Time To Repudiate The Crooked Rasgas Deal

By R. Sasankan

Pressure has started to mount on the Narendra Modi government to re-negotiate the pernicious gas supply deal with RasGas of Qatar after my article Qatar Gas: Time To Rework The Crooked Deal appeared in this column on February 10. The Modi government is only too keenly aware of the manner in which the provisions of the deal were changed by officials – with the connivance of their political bosses – and deeply compromised India’s interests.

www.indianoilandgas.com has written many times in the past of how then officials struck a deal with RasGas by accepting terms that were outlandish and foolhardy in an industry that is notorious for volatile prices. The crux of the problem arose because of the decision to price the gas at a 60-month average. When the deal was struck, the price of crude oil – which in itself is a questionable barometer for gas pricing – hovered at around $ 25 per barrel. When crude oil prices rocketed, the recklessness of India’s negotiation position stood cruelly exposed and started to raise suspicions about the integrity of India’s negotiators.

The Modi government has tried to exert pressure but the Qataris, of course, have refused to renegotiate the terms of the deal. The situation has now become alarming, especially at a time when there is a gas supply glut in the market and prices have started to tumble.

Several readers including experts and officials, both serving and retired, and CEOs of petroleum entities Madhav Godbolehave reacted to our latest article and have gone on to suggest that the Indian government ought to repudiate the agreement in the face of Qatar’s intransigence simply on the ground that there is a stink of corruption around the long-term LNG deal that Petronet LNG Ltd (PLL) entered into with RasGas.

“You need to be congratulated for highlighting this scandalous deal, repeatedly. Unfortunately, no notice has been taken by the government. Why not make a public appeal to the Petroleum Minister and Prime Minister to appoint a judicial commission for a thorough enquiry,” suggested Madhav Godbole, former secretary in the Ministry of Petroleum and Natural Gas and later the defence ministry. Surya P Sethi

“If it is established therein that the deal involved corrupt practices, it can even be legally disowned by the government. If such an appeal is to be made to the government, I shall be happy to be a signatory,” Godbole added.

Dr Surya P. Sethi, former principal energy advisor to government of India, picked up the refrain.”What Mr Godbole is suggesting is what I had suggested long ago. As I had informed you, all contracts can be reneged if corruption is being investigated/ established. I too will be happy to sign a public appeal,”said Dr. Sethi, an energy expert of international standing who came to India from International Finance Corporation at the invitation from then Prime Minister Atal Behari Vajpayee.

Bhamy ShenoyDr Bhamy Shenoy, an IIT Madras alumni and a US-based energy expert who has worked with multinational oil companies and overseas regulatory bodies, joined the groundswell of protest.”I am delighted to read your expose on the”crooked Qatar LNG deal” and also devastated at the same time. Delighted that you exposed the crooked deal and sad because India is in a tough negotiating position today and stands to lose billions. I am sad that the media has not caught on to this sordid deal.”

Dr Shenoy was aghast that the UPA government had agreed on a price based on 60-months average. He said:”Was this because when they were negotiating in 2004, oil prices were moving in a narrow band of around $25 per barrel? Was this again sheer lack of expertise of (the workings of the) oil industry on the part of the government?”

In Dr Shenoy’s view, when India renegotiated the deal in 2015, the NDA government compounded the blunder. He notes that the negotiating team at that time did not have a single oil expert. He seems to believe that Indian officials have a notorious habit of negotiating poor deals.

“In 2017, when India renegotiated the contract with Exxon’s Gorgon LNG project, it was also hailed as a great victory. In this case, the oil price formula was changed from a cocktail of Japanese crude oil to Brent and instead of 14.5 per cent of crude oil price, it was changed to about 13-13.5 per cent on a delivered basis where as India had to pay the shipping freight. Certainly, this was a better negotiation than the previous one even though it has now turned out to be not such a good deal. Could they have negotiated a better deal? From hindsight, it looks that one could have. However I cannot find fault with this...I have to revisit the US LNG deal. I will not be surprised that we might have failed there also,” said Dr Shenoy.

S.C.N. JatarMaj. Gen. J.C.N. Jatar, former CMD of Oil India Ltd, reacted very strongly to the article.”This is really shocking. I am making a complaint to the PMO and asking for a vigilance inquiry. Let's see what happens.”

A part of the problem arises because of the peculiar structure of Petronet LNG Ltd (PLL): its principal promoters were four state-owned petroleum companies who together held a 50 per cent stake. In one sense, it was neither a public sector outfit nor a purely private sector entity.

PLL was the brainchild of Dr Vijay Kelkar, the then secretary in the ministry of petroleum and natural gas.

He wanted to create an entity whose operations would not be hobbled by bureaucratic delays. It would be largely owned by the public sector behemoths but enjoy the agility in decision-making that private companies display. But there is a gulf between precept and practice. It was not long before officials realised that the unique structure of PLL meant that its actions would not be subject to the scrutiny of the Vigilance Commission or the Central Bureau of Investigation (CBI).

Vijay KelkarDr Kelkar wanted PLL to be headed by an honest, upright person. His choice was K.K. Kapoor, who was about to retire as the chairman and managing director of Gas Authority of India Ltd (GAIL). But Dr Kelkar was shifted from the ministry of petroleum and natural gas soon after and that plan went up in smoke.

Prabir Sengupta replaced Dr Kelkar at the ministry. Sengupta had a personal animus against Kapoor and he scuttled the latter’s chance. The cause for bitterness was over a trivial episode. The story goes that when Sengupta was a joint secretary on deputation, he had gone to meet Kapoor at the GAIL headquarters. Sengupta seethed when Kapoor kept him waiting. He never forgot the insult – and when the opportunity presented itself, he shafted the former GAIL boss.

The interview for the post of CMD of PLL was already fixed and the candidates were shortlisted. Sengupta plumped for Suresh Mathur, director (finance) at IOC, who had not applied for the post and was consequently not on the shortlist. The interview board, which was packed with CMDs of PSUs, picked Mathur. None of them had the temerity to reject Sengupta’s choice since they reported to him and he could damage their careers as he wrote their confidential annual assessment reports. The rest, as they say, was history.

K.K. KapoorKapoor acknowledges that he had recommended the creation of a Special Purpose Vehicle (SPV) to import LNG and had warned that the “take or pay” clause in LNG contracts could play havoc if not handled cleverly.

“Any LNG contract where price variation is linked to the price of oil, can result in making re-gasified gas (LNG) totally unviable as nobody has been able to predict price of oil and that too for 25 years in advance. By creating a separate company, LNG supplier can have the access at the worst to the balance sheet of this SPV and never to the balance sheets of our large promoter companies. Further, if we cannot have fixed price contracts, we should have minimum maximum limits within a short bracket. Fortunately, Qataris themselves offered a price with not a very large bracket for max-min though there was still scope for negotiating down the basic price and range. One cannot understand why the basic offer was cast aside and we went in for the 25-year contract linked to a highly speculative price of oil,” says Kapoor.

India ought to have recognised that the seeds of corruption in the deal were sown a long while back. It could have reneged on the deal, launched an inquiry and identified those who were responsible for a blatantly corrupt deal.

It makes no sense now to renegotiate a deal that has a canker at its heart. The most sensible option for the government would now be to increase off-take and seek a completely new deal. This deal can subsume the quantity negotiated under the earlier deal. RasGas cannot baulk for long at such an offer at a time when the market is facing an LNG glut.

 



To download the latest issue 'Volume 26 Issue 24 - March 25, 2020', click here
Petro Intelligence [FREE Access]
Putin Plays An Ace To Ruff Trump’s Hand
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Urals Gambit: Putin’s Strategy To Conquer Indian Market
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Time To Repudiate The Crooked Rasgas Deal
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Bombay High’s Tale Of Woe: Short Shrift For Local Talent
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Foreign Investment
Shell Partners With INOX
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Overseas Investment
HPCL Commissions Its First Petrol Pump In Bhutan
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Air Products To Provide LNG Technology For Mozambique Onshore Project
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Gas Scene
Domestic Natural Gas Scene In February 2020
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Capacity Utilisation of LNG Regassification Terminals
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Natural Gas Price Trends: Global and Domestic
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Sector-Wise Consumption of Natural Gas In January 2020
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Domestic Natural Gas Scene in January 2020
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Natural Gas Price: Global & Domestic (December 2019)
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LNG Import, Gas Production and Consumption Since 2007-08
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Gas - Import Dependency
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Sector-wise consumption Of Natural Gas Since FY 2016-17
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LNG is more competitive for transportation distances beyond 1,000km (offshore) and 3,000km (onshore)
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China’s Dependency On Imported Gas Trending Up As Production Lags Behind
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Natural Gas price trends: Global & Domestic
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CNPC’s shale gas target looks overly ambitious
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LNG Has Relatively High Emission Intensity In Some Cases
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Global and Domestic Natural Gas Price Trends
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Asia’s (excluding China) gas production remained flat from 2010
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Evolution of natural gas consumption in India
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Data Section
Monthly Upstream Data
Monthly Downstream Data
Historical database
Data Archives
Special Database
Price Movements In Indian Basket Of Crude In March 2020
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Automobile Sector Continued Its Dismal Performance In February 2020
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Power deficit: Region-wise position for February 2020
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Types of Crude Oil Processed by Indian Refineries during April 2019-February 2020
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LPG, Pet coke Continue To Dominate Petroleum Products Import In February
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Region wise percentage share(%) of crude oil during April 2019 -February 2020
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Domestic Oil & Gas Production Vis-Ŕ-Vis Overseas Production
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Update: Gross Refining Margins (GRM) of refineries
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Update: Coal Bed Methane (CBM) gas development
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Total subsidy/under-recovery on petroleum products & natural gas
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Operating And Under-Construction Nuclear Power Plants In India
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Indian Drilling Rig Count In January 2020
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BPCL’s E&P assets overseas and within the country
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Prices in Indian Basket of Crude In February 2020
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Role of coal in energy supply and power generation in 1971-2017
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Realignment of India’s Crude Oil Imports
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Auto Sector Continues With Dismal Performance In January 2020
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Domestic LPG Scene As On January 1, 2020
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Update: Production Vis A Vis Consumption Of Petroleum Products
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Update: Consumption Growth of Petroleum Products for the last ten years
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Power Deficit: Region-Wise Position For January 2020 (% Deficit)
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High Sulphur (HS) & Low Sulphur (LS) crude oil processing
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Tenders [FREE Access]
Petronet LNG
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ONGC
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ONGC
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