Thursday, 16 March 2017

Some Answers Still Missing !



Business Standard  ( 16 March 2017 ) carries following news report :


Cabinet clears policy offering pricing freedom for coal bed methane gas

The Cabinet Committee on Economic Affairs (CCEA) has given its approval for marketing and pricing freedom to the coal bed methane (CBM) contractors to sell the CBM at arm's length price in the domestic market.


 “While discovering the market price for arm’s length sales, the contractor has to ensure a fully transparent and competitive process for sale of CBM with the objective that the best possible price is realised for the gas without any restrictive commercial practices,” said a CCEA press release.


CBM contractors have also been permitted to sell the CBM to its any affiliate, in the event contractor cannot identify any buyer. Royalty and other dues to the government, however, will be payable on the basis of Petroleum Planning & Analysis Cell (PPAC) notified prices or selling prices, whichever is higher. 


The policy is expected to incentivise the CBM operation in the country to boost gas production and will generate economic activities which in turn will be beneficial for creating more employment opportunities in CBM operations and related activities.

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While welcoming this policy in respect of CBM , instead of taking up the question of just one natural resource at a time , I hope the government will soon come out with a COMPREHENSIVE POLICY on EXPLORATION / EXPLOITATION of all NATURAL RESOURCES , which answers the questions raised by me some 3 YEARS back ( read following blog ) :


Sunday, 16 February 2014

Needed - some Simple Answers !


This is with reference to the controversy surrounding the pricing of KG-6 gas of Reliance , which started with $ 2.4 , is currently $ 4.2 and slated to rise to $ 8.4 / unit , from April 2014


Writing in yesterday's Times of India , ( Swaminomics ) , eminent economist , Swaminathan Anklesaria Aiyar , made following points  :



*   Reliance ( KG - 6 ) accounts for only 10 % of the gas production in our
     country . Balance 90 % is by Public Sector Companies such as ONGC etc


*   Hence , any increase in selling price will mostly benefit government itself

     ( Any idea , what will government do with this windfall  ? )


*   Price - hike envisaged is recommended by a committee headed by Mr C
     Rangrajan  ( - implying , infallible / sacrosanct  ?  )


*   By introducing price control on gas , " India's name is mud globally , and
     top exploration companies now avoid India "


*   An economic rule of thumb is that " traded Commodities " should be
     priced on par with the import price ( my question : irrespective of the
     actual cost of production in India ? )


     The Rangrajan price of $ 8 / unit , is well below the import price



Not being an economist , I am confused  !


May be Mr Aiyar can dispel my following doubts  :


*   By taking out of our own soil ( or sea ) , does gas become a " traded
      commodity "  ? - even if entirely sold in India ?


*    Is KG-6 gas a " Natural Resource " which belongs to the Nation - and
       not to Reliance  ?


*    Is Reliance the " Owner " of the gas or a mere " Contractor "  ?


*    Would Mr Aiyar , want the Central Government to extend the same logic
      to other " Natural Resources " ( belonging to the country ) , being dug
      out from the earth ( by private companies ) , such as :



      *   Oil / Coal / Shale Gas etc  (  Fossil Fuels )


      *   Ores of Iron / Copper / Zinc / Aluminum etc


      *   Trees ( timber ) that grow in our jungles


      *   Any number of minor minerals / chemicals



      Should these too , be treated as " Traded Commodities " , whose local
      selling prices must be same as Imported prices ?



*    What about the  air / wind  that blows freely over our land  ?


      Does it belong to the Nation or not  ?


      Or , does it belong to the Companies setting up  WIND FARMS  , to
      generate electricity  ?


      Should such power be " Price Controlled " or not  ?




*    What about the  Sunlight  that falls on our vast land  ?


      Who does it belong to  ? To our government or to the companies setting
      up mega Solar Power Projects  ?


     Should there be a price control on such power - produced , using a  National Resource  ?




*    What about the hydro - power generated by private sector companies
     from the water flowing in our Country's rivers  ?


     Does - or does not - that water belong to the Nation  ?


     Should not such power be price - controlled  ?




*   Tomorrow , if a private sector company ( or a consortium of Indian
      Companies , in joint venture with foreign companies ) , invest Rs 1 Lakh
      Crores , to build the 22 Km long Kalpsar Dam across the Bay of Cambay
      in Gujarat , and generate 10,000 MW of power from Oceanic Tides  , -
     can they be allowed to set any selling price  ? At International price  ?


     I suppose , it would be next to impossible for them to " Export " such
     power beyond the shores of India  !



*   Incidentally , what about the Airwaves ( the 2G / 3G Spectrum )  ?


     Is that also a Natural Resource which belongs to the Nation ?


     Having " licensed " it from the Central Government  , can Mobile
     Phone companies , set any selling prices for their services  ?


Even with a combined debt of around Rs 2 Lakh Crores , how are these
    Mobile companies , able to deliver ( nearly ? ) cheapest mobile phone

    services in the entire World ? May be at 10 % of international price  ?




*   In ALL of the above - mentioned cases , should Central Government
     carefully calculate / frequently audit , the " Cost of Production "  ? Then
    link the " Local / Domestic , Selling Prices "  to such " Cost of Production "
    allowing certain  pre-determined " Return on Investment "  ?



*   Even as we agree that " Export prices " of gas are governed by prevailing   
     international prices , how come the " Domestic Prices " of gas are vastly
     different in different countries , ranging from under $ 1 to $ 5 / unit  ?


     Does this itself , not prove that , in each country , domestic prices are
    linked to their own local " Cost of Production "  ?



*  Very often , have we not exported , food grains , at " Below the Cost " ?




Mr  AIYAR ,



You will be doing a great service to millions of ignoramus like me , by offering your own " Views " on the points raised above


And , I suppose , since the fall in production from KG - 6 , is purely and entirely , due to " Technically Sound " reasons , raising of the selling price to
$ 8 ( or even $ 16 / - ! ) , won't result in any increase in production !



Time alone will tell  !

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FOOTNOTE :

It seems , Oil Minister , Shri Dharmendra Pradhan has taken some of my suggestions into account while announcing auction of 67 Oil / Gas blocks , yesterday

Hindustan Times   ( 26 May 2016 ) describes these as follows :


"  Spelling out salient features of the policy , sources said the auction will be done on a REVENUE SHARING model, where bidders will be asked to quote the REVENUE they will share with the government at LOW and HIGH end of the PRICE  and PRODUCTION


The new REVENUE SHARING REGIME will replace the controversial PRODUCTION SHARING contract ( PSC ) model where oil and gas blocks are awarded to those firms which show they will do maximum work on a block


Also , a single license for exploration and exploitation of conventional and non-conventional hydrocarbons will be issued and operators will have freedom to sell oil and gas on arms length market price , Pradhan said , adding that there would be no cess on crude oil  "



17  March  2017


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