Battleground India: Nine Major Conflicts Shaping Your Life
2 The Flare Up
Natural Gas Pricing
by Cuckoo Paul & T. Surendar
If you thought there was a surfeit of news about the pricing of natural gas last year thanks to the fight between the Ambani brothers, be prepared for some more. The government plans to create a ‘gas pool’, where gas from domestic and international sources will be bundled, to be sold at a common price.
Now that is easier said than done, with imported LNG costing over $10 per million British thermal units (MMBTU) and the biggest domestic supplier Reliance Industries’ gas sold at just $4.2. The common pool price will be somewhere in the middle. But the path to arrive at an acceptable price for gas is a minefield.
For starters, RIL already wants a higher price over that arrived at by the Empowered Group of Ministers (EGoM) two years ago. It says the cost of drilling has gone up. RIL is producing significantly lower quantity of gas than projected initially. But the EGoM had fixed Reliance’s KG Basin gas price for five years; any move to increase prices will face opposition from the large users in the power and fertiliser industries.
Secondly, as more and more companies and city distribution networks sign up for gas, the government is also worried about the disparity in the pricing of imported gas as compared to the KG Basin gas.
Pooling the gas will neutralise the price difference and even out the anomaly created by different prices to different customers. A senior industry professional says that Reliance would be opposed to this scheme if the price it realises for its gas remains at $4.2 per MMBTU. But if the government increases the price for KG Basin gas to $6, it might back the scheme.
Firms like Petronet LNG will benefit from gas pooling. Currently, importing gas at $10 and selling it is not viable for them because local gas is available cheap. With the gas pool, they will be able to import and sell to more customers. This will be possible because the pool will fund any loss between imported price and sale price.
3 Time for Redial
Telecom Deserves a New Deal
by Shishir Prasad
He is a good man. He is a knowledgeable man. He is one of the few ministers in the cabinet who can understand technology and law,” says the CEO of a Telecom company, “But the best thing Kapil Sibal can do is to make himself redundant.” Sibal met the CEOs of all telecom companies on December 22, 2010, and has said that in 100 days he will clean up the mess and lay down the framework for a new telecom policy. Before peace can reign, he must end the battle that is raging at the moment.
This latest trouble comes after three years of peace and started when the Comptroller and Auditor General released the report on the ‘scam’ in the sector about six months ago. Now the war has been joined by the politicians. Clearly, BJP and its allies see visions of 1989 when a similar CAG report destroyed the Rajiv Gandhi-led Congress government. They have revived a blood feud that involves two camps within the sector, the government and now, of course, political parties.
So what can Sibal do? He can cancel a few licences. A public interest litigation has already been filed in the Supreme Court on this. No doubt, it will be contested bitterly. Or he can ask all the mobile firms that received ‘excess’ spectrum to return it. This is impractical because the combined subscriber base of these players is very large and they would suffer; the companies will have a network planning nightmare on their hands, not to mention the resulting wealth destruction in their stocks. Sibal could instead levy a one-time charge to ‘regularise’ the connection! But all this will be open to litigation.
“Basically he has to declare a New Deal a la Roosevelt for the sector,” says an executive. Almost all players are unanimous on the three things he can do. First, he must set up an institution like the Securities and Exchange Board of India that is independent and has executive powers, to frame policy and allocate spectrum keeping only the consumer in mind. Two, he should make sure that if entry into the sector is free, then exit should be free too — that means, change the mergers and acquisitions norms. Three, he could attempt (but will probably find it hard to convince the home ministry, defence ministry and the Prime Minister’s Office) to move the Armed Forces to a different frequency band and free up spectrum. All this in 100 days? Well, it is nice to have a target!