Wednesday, the 31st of October, 2012, started with a buzz insocial media circuits as to who would be the next target of Arvind Kejriwal.During the day, several names were speculated upon “ Anil Ambani of the ADAGGroup, a mining conglomerate in Madhya Pradesh, and Gujarat-based Adani Group.Finally, by 2 pm, it became clear that the man in Kejriwal’s crosswire wasMukesh Ambani, the promoter of Reliance Industries Ltd (RIL), India’s largestprivate sector firm.
Ironically, when the stock markets closed a couple of hourslater, the RIL scrip was up while many of the ADAG Group’s were down. Theinvestors, it seemed, were not interested in Kejriwal’s press conference, whichstarted just after 4 PM that day. However, the next day (Thursday), RIL wasdown and ADAG stocks were up in early morning trades. But the charges hurled byIndia Against Corruption (IAC) against RIL and the government, although old,were serious. It said that the oil & natural gas major had manipulatedgovernment decisions to get undue benefits.
As Kejriwal said at the press conference, “Sarkar toh MukeshAmbani chalate hain (the government is run by Mukesh Ambani).” But what is theveracity of these charges? Is there a smoking gun lurking around, or is it allsmoke without any fire? Is the government really in the pocket of MukeshAmbani? Can the KG basin events be labeled as the worst form of cronycapitalism? We provide a primer to understand the issues involved and what dothey mean.
Allegation # 1: RIL sold India’s natural resources, whichbelonged to the people, at a huge profit to BP
The Supreme Court, in its various orders, has stated thatnatural resources like minerals, oil & gas, and telecom spectrum belongs tothe citizens and, hence, they can be used only for public interest, and notprivate profits. So, the price paid by BP should have gone to the government,and not RIL, which was “just a contractor hired by GoI (Government of India) toextract gas.”
However, a distinction has to be made between the sale ofvarious natural resources, say spectrum and natural gas. In telecom, thespectrum can be used from Day 1 (technically) by the private buyer to offermobile and other services, and earn profits. Yes, the operator does have to setup towers and invest in infrastructure to provide efficient services, but themain business risk is finding enough customers willing to pay viable tariffs.This is not so in the case of gas.
The risks attached with the gas business are higher. Forexample, there is no guarantee that gas will be found if a well is drilled in aspecific area. Most global companies are saddled with hundreds of empty wells.Thus, the investments, which run into billions of dollars, have to be madebefore the exploration firm knows whether it will find gas in the region. Sure,there is seismic data on the gas trapped underneath, but it only increases thechances of finding gas without any certainty.
Allegation # 2: Oil ministers were appointed and sacked atRIL’s behest
IAC contends that the government is run, not by ministersand the bureaucracy, but by business houses. “It appears that telecom companiesselect their own nominees as Telecom Minister and RIL selects its own person asPetroleum Minister,” stated its release. For instance, Kejriwal said that twoministers, who were anti-RIL “ Mani Shankar Aiyar and Jaipal Reddy “ weredivested of the petroleum portfolio in 2006 and 2012, respectively, because ofpressures from Mukesh Ambani.
There appears to be some truth here since Murli Deora, whoreplaced Aiyar in 2006 and remained in the ministry until 2011, was pro-RIL. InJuly 2009, at a shareholders’ meeting of one of his firms, Anil Ambani,Mukesh’s younger brother who had separated in 2005, said that the petroleum ministryunder Deora was abetting “the plain and simple greed of RIL”. It is also knownthat Reddy (2011-12) had initiated several actions and taken decisions thatwent against RIL’s business interests.
In association with Governance Now
