Gas pricing issue – an educated aware citizens take
There has been a lot of
brouhaha about gas prices which has been raised by Arvind Kejriwal and many of his supporters
think he speaks gospel truth and scream even louder on the issue. I am sorry to
note that very few even seem to know
basic facts and the slightly more aware throw in the name of former cabinet secretary and others as
proof that Kejriwal is right. For a
minute assuming that Kejriwal is right which he is not, how come none of
these worthies like the cabinet
secretary are coming out and defending him ? The reason is simple. What they spoke
and what he is speaking are two different issues and they realise as decent
gentleman that if they stand up to defend him ,they would get stuck with the mud for his lies. More on that later.
Firstly let us understand the
fundamentals of gas business.
It is a high risk high return
game. Barring places like middle east in every other location globally you need
to literally sink in billions of dollars of investment with the prayer and hope
that you strike oil/gas. The geologist
surveys itself take huge amount of time and money and after all that it is
still a gamble. Even if you strike
oil/gas the quantity is again a gamble and a guess at best.
The equipment needed, the
size, scope and technological capability needed for anyone to explore for gas is humongous. The time
taken to reach a stage of getting returns is years and sometimes even decades. That
is why in most places it is the governments that invest and manage it. Once the
industry reaches a stage of some maturity and investor confidence the
governments invite private companies to explore but still underwrite some of the
risks.
So any company exploring for
gas would do it over many years, in many locations and after having sunk in
billions of dollars find that that they
have success in some places, failure in other places. Now any sane accountant will
tell you that the entire investment would have to be recovered from the success
stories. Let me give an example. Say
you invest 1 billion dollars each
in 5 wells and then find success in 2,
you have to recover the 5 billion dollars from 2 wells. The argument of Kejriwal where he talks of lower price is
based on taking 1 billion dollars as investment and then making it appear that cost is low but
companies are charging exorbitant prices.
That is a huge lie.
The risks are explained in
some detail in this article. Just do a quick math. Reliance alone has
invested 11 Billion dollars, gas was
identified in 2002 and is still not available for use/sale after 12 years. Reliance has also invested 4 Billion dollars in pipelines and the gas actually
found is 80% LESS than what was estimated. Now all these investments have to be recovered through the gas price. If this is the truth on investments about Reliance
with hardly 10% of the gas find, do a quick math of what ONGC and other government
companies must have spent which is 90% of the market.
This article explains as to
how even after this increase in gas price ONGC cannot monetise its investments
on the overall based on discovery.
Secondly let us come to the
situation in India. 90% of the gas is under the control of the government
companies be it ONGC or GSPC or anyone else. So whatever price the government
offers goes back to the government and not Ambani or Adani as Kejriwal loves to
claim. Yes Reliance is a major player but compared to ONGC is a midget. It is
smart marketing and diversified business that gives people the impression of
Reliance being the major player here while thinking that they are only into oil/gas.
The following article explains the details. What is pertinent to note here is that this
increase in gas price will benefit Reliance 3 to 4 years down the line when they
actually manage to bring out the gas and start selling it.
All those who are screaming
hoarse about Reliance should also remember that Reliance established hundreds
of retail outlets all over India and now every single of them are closed. Or is it too much to ask for people to open their eyes and see ???? Why did that happen?
The government sells oil/gas
at a subsidy. You can debate ad nauseam
on the benefits or pitfalls of subsidy but that is a different topic altogether.
Government can decide whatever they want
as economic policy. They can decide to credit each of us with 1 crore in our
bank as cash which maybe economically a suicidal idea but is still a
decision that a government can take. Similarly the government decided that
petrol/diesel would be sold at a subsidy of almost 50% and private sector
companies are NOT eligible to get the subsidy. So Reliance had to cut its
losses and close down all pumps.
What is done now ? Government buys from Reliance and many other
companies globally at market prices and sells it to you and me at a subsidised
price. That is how this business works. Companies like Indian Oil/HP/BPCL buy fuel at
global prices, sell at half price to us and send the difference as a bill to
government who then pay them and recover it as taxes from us the people. So nobody
is printing the money or gifting it nor
is it growing on trees.
This link explains how the gas prices are actually lower for different sectors and subsidised in India which is a different decision all together. But then Kejriwal will not tell you the truth, will he ?
Today the demand for gas in India
has gone up and companies like GAIL have invested billions of dollars to lay
25000 kms of pipelines across India. Now what do you do with these pipelines if
you don’t supply gas to people ? What happens to this investment ?? This money
is again our taxes, our money. So Government
imports gas paying in excess of 12 $ per unit and the only people who benefit
are global companies in the middle east and elsewhere who then live a lavish
life style. We citizens want to go live
in Dubai, Kuwait and such places and wax eloquent about the luxury that is
there and keep complaining about India. But we forget that their luxury is
because we import oil/gas from them at huge prices and then sell them at a low
price here and then also punish Indian companies be it ONGC or Reliance by not
compensating them with proper pricing.
This fun of subsidy has continued
for long, the Congress government was
happy and all was supposed to be hunky
dory. But then when you spend 10 years in power and then spend like there is
no tomorrow, the chickens do come home to
roost. So you then reach a stage where you have no choice but to increase gas
price to support and grow local industry, to support and grow government owned
companies like ONGC/ GSPC.
When 90% of the gas is owned
and sold by the government I wonder how Modi or for that matter any idiot can
object to it and how can they personally benefit ?
Here is where Kejriwal lies blatantly and people lap it up.
So let us come to why the
other worthies have objected and why they are not standing shoulder to shoulder
with Kejriwal if what he says is true.
The government took a decision
on increasing gas prices and the correct way of implementing the decision should
have been to do it immediately which was about 6 to 9 months back. At that time
Reliance would NOT have got the increased gas
price since their contract was to start from 1st April 2014. Somebody in
their wisdom or stupidity decided that the gas price increase would be made
with effect from 1st April making it sound that Reliance benefited.
Whether there was corruption involved in this is anybody guess but logically it
doesn’t make sense because in anycase Reliance would and could get the increase
only from 1st April. But if the government had taken the decision correctly
then ONGC/GSPC and the government companies would have got the higher price of
gas 6 to 9 months back while Reliance would get it from 1st April. Earlier
in the past when a similar decision was taken
and Murli Deora was the Oil Minister he had insisted that the government
companies get benefited immediately and Reliance would await its turn as per
contract. This time by not doing this
the government gave a stick to people to beat them with and Kejriwal
smartly twisted facts to make it appear
that ONLY Reliance had benefited which
is a lie.
It is quite possible that
there is corruption here like anywhere else in India. "THAT" corruption would
exist irrespective of any decision, even if the decision is to give away gas for
free. So the issue here is the economics and the logic of the decision and not
that the decision taken is with any corrupt intent. On my part I would laud the
Congress government for this decision and, but for someone decisive like Moily
this would have dragged on with huge
costs to our economy. I only hope that the next government expected to be a BJP one supports this
decision since if they don’t, they start with economic suicide from day 1 and would lose my respect.
So the message to all my
friends who believe in the gospel truth of Kejriwal, my simple request – His agenda
of corruption eradication is all fine and laudable. But in the process when he
lies blatantly to prove his point please
do your own fact checking. Today the internet gives you immense scope to learn
and educate yourself very quickly and please do so and take informed decisions instead of reacting to what someone
like Kejriwal says for political mileage. His lies
make us look far worse than what we actually are and that can be
injurious to our ability to progress and grow.
Comments