Who is hurting Andhra Pradesh in the KG Basin gas supply, asks Sarma
Moneylife Digital Team 07 August 2012

According to the former secretary, the decision to divert gas from KG Basin to Ratnagiri is aimed at whitewashing the dishonesty implicit in the erstwhile Enron project at the expense of consumers from AP

EAS Sarma, former secretary of the Government of India (GoI), has alleged that there are irregularities committed in the pricing, allocation and the management of the natural gas from Krishna Godavari (KG) Basin to the detriment of the public interest at the macro-level and to the detriment of Andhra Pradesh at the state level.
Mr Sarma, in a letter to Jaipal Reddy, minister for petroleum & natural gas (MP&NG) and Vinod Rai, Comptroller and Auditor General (CAG), has said that the manner in which the MP&NG has gone about in the allocation and pricing of natural gas from KG Basin raises important public finance concerns, which deserve a close scrutiny.
Earlier, the Empowered Group of Ministers (EGoM) had prioritised gas allocation to fertilizer plants as well as the Ratnagiri plant which was given special status as it was taken over by the Central and Maharashtra governments after the collapse of Enron.
Mr Sarma, in a separate mail to the CAG, said, "I understand that your office will be auditing RIL’s accounts shortly. I believe that, if your office confines itself to the accuracy of the capital expenditure details alone, and miss out on the larger diseconomies imposed by the MP&NG, you will be missing the wood for the trees. While auditing the capital cost figures is certainly important, the diseconomies also assume importance in view of the huge cost implications. Your intervention in such matters should be suo moto, as you have the Constitutional obligation to inform the Parliament on this.”
Yesterday, Mr Reddy while advising the Andhra Pradesh (AP) government to make an appeal to the prime minister and the EGoM for reviewing the decision said the state should go for power generation by regasified liquefied natural gas (RLNG) to overcome the power crisis.
However, Mr Sarma said, “Whoever has advised you (Mr Reddy) to make such a laughable statement are illiterate in economic logic and inconsiderate to protecting the legitimate interests of AP.”
“Purely on economic considerations, the natural gas produced in KG Basin should be used as close to the gas producing fields as possible, either for generating electricity or for manufacturing fertilisers, since the transmission of electricity through high tension transmission lines and transportation of fertilisers by rail, are any day cheaper than transporting gas to distant areas like Maharashtra and Delhi,” the former secretary said.
He said, “This implies that the consumers of electricity and fertilisers in AP are forced to pay an exorbitant price to help the political executive at the Centre to appease the consumers in Maharashtra and Delhi and also pander to the wishes of Reliance Industries (RIL).”
There is also an element of outright dishonesty in suggesting that AP should buy RLNG from the Middle East, Mr Sarma said, adding that it was Enron’s Dabhol plant that was supposed to get highly expensive LNG from Qatar. However, the electricity from it had turned out to be so expensive that erstwhile Maharashtra State Electricity Board (MSEB) could not sell it to its own consumers or export it to any state outside.
“I was a part of the Godbole Committee that examined this issue in detail and I am fully aware of the circumstances that led to Enron’s collapse, the high-level corruption among the politicians of Maharashtra and the Centre and the handing over of Dabhol to NTPC/GAIL under the name, ‘Ratnagiri’ power station. The decision to divert gas from the KG Basin to Ratnagiri is aimed at whitewashing the dishonesty implicit in the Ratnagiri project at the expense of AP consumers,” he alleged.
Mr Sarma said, “The political leaders at the Centre and in AP joined hands with RIL to sacrifice the interests of AP to benefit the company and obfuscate the issue of corruption at all stages.”
According to the former secretary, the cost of production of KG Basin gas is hardly $0.60 per million metric British thermal units (mmBtu). RIL had offered to supply it to NTPC at $2.34 per mmBtu. “Still, the Group of Ministers headed by Pranab Mukherjee had fixed the price at $4.20 per mmBtu. I have all the GoM correspondence on the subject, obtained under RTI Act. Who has profiteered as a result of this? Who are the politicians who benefitted from this?” Mr Sarma asked.
He alleged that RIL has initially inflated the gas deposits and the production profile to boost up investment in the company from the savings of several small shareholders. “The company has inflated the capital expenditure figures to get the same reimbursed from the government through ‘cost’ gas, to the detriment of the public exchequer. Later, it became evident that neither the deposits nor the production levels were anywhere near the original assurances. Who is behind this scam?” he said. 
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