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National / Cover Stories / Opinion

JUMP CUT

MAGAZINE | JUL 15, 2013

A Wellhead Of Blunders
Why did our market-friendly policymakers revert to the much-maligned administered price only for gas, while batting for market prices for all else?
T.N.R. RAO

Why did our market-friendly policymakers revert to the much-maligned administered price only for gas, while batting for market prices for all else? In a classic case of policy capture by a corporate, an effete government got inveigled into impleading itself into the Ambani family feud. On the pretext of gas being a national asset, it bailed out one sibling from both a private commitment and an inconvenient bid at $2.34/mmbtu to the NTPC tender. This also cheated the country of Malaysian LNG at $3.4/mmbtu. Still, the GoI rewarded the truant contractor with $4.20/mmbtu. It further allowed him to sell part of the national asset for billions of dollars, only to see the reserves evaporate by over 80 per cent. Neither the buyer (BP) nor the owner (the government) demurred. The custodian of our reservoirs, the DGH, has been deafeningly silent. For this vanishing act, the contractor is further rewarded by doubled price, on a dubious formula concocted by a body unlettered in oil/gas, making it the highest wellhead price for gas anywhere in the world. The countrys main opposition party is a silent accomplice in this. The grounds adduced are specious. Crude oil gets international prices since the 90s but production has stagnated. The gas story wont be any different. The Instead of doing the world over, oil/gas drilling rise and fall with market prices. Fields unviable at markets job, the prices market cant bear remain capped. At $200/bbl or more for oil, Assam, govt should have sitting on shale sands, can produce enough oil to make the country applied itself to self-sufficient. But thats not how e&p is played. Such artificially high prices hurt formulating policy. the economy. The FM, with his pinch the baby, rock the cradle act, hints at further subsidising power and fertiliser sectors out of public funds, but not touch private profits. Already, power plants in India are switching to coal from costly LNG/gas, adding to higher carbon emissions and imports. On the other hand, the US shows what low energy prices can do; its enabled industrial units from Africa and Latin America to be transplanted to US, boosting its economy. High energy prices, fixed in dollars against a falling rupee, will have a disastrous effect on our economy. Instead of doing the markets job of determining prices, the government ought to have exerted itself to formulate policy measures non-existent now. Higher investment and competitive energy prices need a strong, independent and stable regulatory regime. All gas pipelines are natural monopolies and fragment the market. The policy regime should mandate the trunk pipelines to meet, ensure non-discriminatory access, destination flexibility facilitating price arbitrage so that gas-to-gas competition is generated. Reserve disclosure norms should be made statutory. The CCI should discourage monopoly pricing practices and start processes to decouple gas prices from oil. Otherwise, the country will remain frozen in time. Will production rise now in KG basin? If so, why is ONGC being persuaded to lease the gold-plated facilities, instead of building its own? All infrastructure here is financed by cost of oil/gas and so belongs to the government. Any lease rentals should accrue only to the government, a point to be noted by the CAG and the CVC. T.N.R. Rao, former petroleum secretary; E-mail your columnist: tayur AT bol.net.in
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15-07-2013 13:16