Caution Urged For Correct Approach To Kg Basin

Thesynergyonline Corporate Bureau, August 05, 2009

CUTS International, a think tank working on policy and regulatory issues in the energy sector, supports the stand taken by the Central Government that any contract between two firms relating to the extraction of a mineral resource should be validated by the government. In a statement Mr. Pradeep Mehta, Secretary General, CUTS International stated that though the matter is sub-judice, the government’s move on the issue is correct and in the wider public interest.

“The government should intervene in the dispute on the distribution of gas from the KG basin without getting embroiled in the family or business affairs of the Ambani brothers. Gas is a scarce natural resource and national policy requires that any private or public control over the gas basin and resulting operations should be in the public interest.” Mr Mehta added.

Anil Ambani claims that the contract with his brother, Mukesh requires, Reliance Industry Limited (RIL) led by the latter to supply gas at $2.34 per MBtu (metric British thermal unit) to Reliance Natural Resources Ltd. for 17 years. The long duration of the contract limits the scope for competition among potential suppliers. Ideally, the price should be determined by demand-supply conditions or through a competitive bidding process.

“There are other public and private sector companies waiting to undertake extraction from fuel sources in the country. If the existing contract is allowed to continue, it will limit the scope for further competition in the sector. The KG basin is one of the major gas sources in the country. Therefore, such a long term contract should be carefully scrutinised,” Mr. Mehta stated.

“Not only should the automobile industry, power and fertiliser sectors benefit from the the basin, but also gas based power plants presently unable to start production due to lack of availability of fuel. A major private generating company, Gautami Power, has already joined the battle by filing a petition in the Supreme Court. It is imperative, therefore, that the government takes necessary steps to resolve the matter at the earliest.” he added.

Mr Mehta opined that the government as well as regulator should avoid giving preferential treatment to certain players in the market which may give a wrong signal to potential investors and inhibit entry.

Views seem to be divided over whether control over natural resources such as gas should be exercised directly by the government or by independent sectoral regulators such as PNGRB.

With the Competition Commission of India becoming active, the latter view appears to be the correct one i.e. the government should function as a catalyst for fair regulation through public-private partnerships rather than an owner with complete discretion regarding the use of natural resources.

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