“Since its establishment in the 70s, the NTPC has been run professionally. But at stake today, are huge sums that will flow from the balance sheet ofNTPC, and eventually from the pockets of the consumers of electricity, into greedy hands”

With reference to above article by Natteri Adigal dated Mon, Aug 24, does not through a light on real issue and has biased approach against the public sector undertakings.

In the article, the author has criticized all the PSUs except the power major NTPC and accused all the public sector companies of fudging their accounts. Is he trying to say that management and the entire work force of all these companies is corrupt? You have cited the example of NPCIL, which operates under the PMO. Has he any idea why is this company operating under direct observation of the Prime Minister of this country. It deals with sensitive substance material which becomes accessible to enemies or terrorist group, can create havoc not only to the nation but also to entire human being on the earth. Therefore, a company handling with matter of national importance has been kept beyond only objective of optimizing its profitability.

Evaluating other PSUs performance, of the total seven companies featured in world’s prestigious Fortune 500 list, five are public sector firms. Led by India Oil, the list includes other oil sector majors like BPCL, HPCL and ONGC. Public sector bank SBI also appears in the list. So the author is trying to state that all these companies have made their global presence felt only through the infusion of funds from the Government and haven’t done anything on their part to achieve the milestones for the companies.

In the light of NTPC case with RIL, the case is not about the price of gas but about the unlimited liability clause. NTPC is fighting its case with its learned and knowledgeable counsels in the Bombay High Court. The learned counsels of NTPC, who I hope must be as intelligent as you are, must have presented all these facts before the Honourable Court that you have covered in your article. Had the Honourable Court convinced by the virtue of stated facts (or misrepresented calculations), it would have given its verdict in favour of NTPC by now. NTPC and RIL still sub-judice.

Irrespective of outcome of the NTPC-RIL case, the fact remains that NTPC did not issue the Letter of Intent (LOI) to the L2 bidder, after the RIL refused to come forward. Moreover, in its contract NTPC held the supplier responsible for entire cost of substitute fuel (unlimited liability)-in case the supplier is unable to supply gas due to any reason. I am unable to recall any such standard contract/tender in the world, particularly in gas business, which offers unlimited liability clause. As per the global best bidding best practises there is always a ‘cap’ of maximum amount payable applicable to supplier, which it needs to pay to the buyer in case it fails to supply gas. The same becomes applicable for buyer also, who needs to pay this maximum amount to the supplier if it fails to off-take the gas.

Unfortunately, this was not the case with NTPC. NTPC did not wish to pay anything to the supplier, in case of its failure to off-take the gas. Contrary, it wanted the RIL to pay the entire cost of substitute fuel. This became the bone of the contention for both the entities. RIL accepted the LOI only after the assurance from NTPC to modify this clause. During the final rounds of negotiation, both the parties even agreed to it. However, Anil Ambani, whose group company was the direct beneficiary of 12 mmscmd of gas if it was not to be supplied to NTPC, (with the help of the then NTPC chairman CP Jain who now works with ADAG), didn’t let the settlement happen.

The NTPC matter never came to the observation of the Oil Ministry, which approves the price and commercial utilization of gas in the country. As everyone knows that the Government is the sole owner of all the minerals in the country. The Government, in larger national interest, formulated the Gas Utilization Policy for commercial utilization of gas. Supply of gas needs to take place in accordance to Government’s Gas Utilization Policy, no matter whether it is a public sector entity or a private one. Therefore, any company including NTPC is not above the Government policy. Moreover, the gas price of $2.34 per mmbtu for NTPC contract never came to the Government’s notice. Hence, it never had sanctity to be an approved price of KG D-6 gas.

As far as pre-existing contract/s for KG D-6 gas is concerned, NTPC agreement is not a concluded agreement. If by saying pre-existing contracts, you are also referring to RNRL contract; it was never a certified agreement. Appropriation of KG D-6 gas, which is owned by the Government, between two brothers in a dark room, is like deciding upon the ownership of Taj Mahal between you and me Mr. Adigal. Therefore, there is no case for RNRL here.

The other argument which highlights that 3.8 times rise in development cost of KG D-6, Government has already cleared the air on the issue three days back. For your clarification, development cost increased on account of doubling of extractable reserves and peak production estimates. Moreover, the rise in field development cost could be attributed to several times increase in engineering, rig and material costs. During 2003-06, the cost escalated by 300%.

The approved price of KG D-6 gas is concerned; the $4.2 per mmbtu price is quite competitive in the country. There are higher gas prices already existing in the market. Gas from Panna-Mukta and Tapti is traded at $5.7 per mmbtu, while GAIL is demanding for much higher price of $6.75 for Ravva gas. Almost all the non-APM gas in the country is sold at a higher price than that of KG D-6. ONGC and OIL, the producer of gas from APM field, have demanded the revision in APM gas prices to the level of KG D-6 gas.

Hence, Dear Mr. Adigal, none of your facts seemed to be well researched. It portrays that you lack understanding of the subject matter. I wouldn’t held you entirely responsible for sub-par knowledge, as this is a complicated issue and needs in-depth understanding of business and gas business. Therefore, I would request you to understand the basics of gas business first before commenting on complicated matters.