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The verdict in favour of RIL says it is high time the government frames a policy to protect India's energy security

On May 7, a three-judge bench of the Supreme Court gave a landmark ruling on a dispute relating to the allocation and pricing of natural gas extracted from the Krishna-Godavari offshore basin in the Bay of Bengal involving two of the richest men in India. The judgment of the apex court was interpreted as a major victory for the country's largest privately controlled corporate entity, Reliance Industries Limited, headed by Mukesh Ambani who has been fighting a bitter battle against his estranged younger sibling, Anil Ambani, whose company Reliance Natural Resources Limited was at the receiving end of the court's decision.

Interestingly, the Union Minister for Petroleum & Natural Gas Murli Deora claimed that the judgment was a victory for the position that had been adopted by the government. Earlier, Anil Ambani and RNRL spokespersons had alleged that the Ministry of P&NG had favoured his elder brother's company, RIL. The Supreme Court argued that the June 2005 private agreement between the two brothers and their mother Kokilabehn Ambani was not legally binding on the government. This has been well publicised. But what has not received the same media attention is a particular aspect of the court's ruling that has been extremely critical of the manner in which the government's energy policy has been framed.

If one reads the full text of the judgment - the majority judgment delivered by Chief Justice K.G. Balakrishnan and Justice P. Sathasivam is 118 pages long while the minority judgment delivered by Justice B. Sudershan Reddy runs into another 146 pages - one gets an impression that the MoP&NG has been rather inefficient in framing and implementing an integrated energy policy that is crucial for the country's energy security. This is significant since the country is becoming increasingly dependent on natural gas as a hydrocarbon resource. After the judgment on the Ambani sibling rivalry, there is a huge question mark over the future of the proposed power plant in Dadri, Uttar Pradesh, near Delhi, which had been touted as not just India's, but Asia's biggest gas-based electricity project.

No one can argue against the contention that the Indian government has the sovereign legal right over all the country's resources (including natural gas) and that no private agreement can override this right. The issue at stake is quite different. Has the Union government, as the custodian of the resources that belong to the people of India, acted in a way which ensures that the interests of the majority of the country's population are upheld? Or has the government's policy favoured a privileged few influential corporate conglomerates?

This is paragraph 87 from the majority judgment: “It is relevant to note that the Constitution envisages exploration, extraction and supply of gas to be within the domain of government functions. It is the duty of the Union to make sure that these resources are used for the benefit of the citizens of the country. Due to shortage of funds and technical know-how, the government has privatised such activities through the mechanism provided under the PSC (production sharing contract). It would have been ideal for PSUs (public sector undertakings) to handle such projects exclusively. It is commendable that private entrepreneurial efforts are available, but the nature of the profits gained from such activities can ideally belong to the State which is in a better position to distribute them for the best interests of the people. Nevertheless, even if private parties are employed for such purposes, they must be accountable to the Constitutional set-up.”

A particular sentence in the above paragraph can be refuted. The government's decision in the early-1990s to hand over properties that had been surveyed, explored and, in some cases, even developed by the two PSUs in the oil and gas exploration and production sector, namely, the Oil and Natural Gas Corporation and Oil India Limited, to private firms was justified by trashing the public sector's capabilities. The fact is that neither ONGC nor OIL lacked resources or technical know-how. Both are profitable companies. These companies were systematically discriminated against after the New Exploration Licensing Policy. Private players such as RIL would never have been able to earn profits by extracting oil and gas had it not been for the fact that much of the initial hard work had already been done by ONGC and OIL. This is a point that was repeatedly emphasised to this correspondent by at least two former chairmen of ONGC, the late Subir Raha and Col. S.P. Wahi.

The minority judgment by Justice Sudershan Reddy devotes considerable amount of space to the issue of the “resource curse” by quoting various individuals, including eminent economist and Nobel laureate Joseph Stiglitz. He wrote: “A small portion of our population, over the past two decades, has been chanting incessantly for increased privatisation of the material resources of the community, and some of them even doubt whether the goals of equality and social justice are capable of being addressed directly. They argue that economic growth will eventually trickle down and lift everyone up. For those at the bottom of the economic and social pyramid, it appears that the nation has forsaken those goals as unattainable at best and unworthy at worst. The neo-liberal agenda has increasingly eviscerated the state of stature and power, bringing vast benefits to the few, modest benefits for some, while leaving everybody else, the majority, behind.”

Justice Sudershan Reddy goes on to add: “We have heard a lot about free markets and freedom to market. We must confess that we were perplexed by the extent to which it was pressed that contractual arrangements between private parties with the State and amongst themselves could displace the obligations of the State to the people… History has repeatedly shown that a culture of uncontained greed along with uncontrolled markets leads to disasters… Historically, and all across the globe, predatory forms of capitalism seem to organise themselves, first and foremost, around the extractive industries that seek to exploit the vast, but exhaustible, natural resources. Water, forests, minerals and oil - they are all being privatised; and not being satisfied, the voices that speak for predatory capitalism seek more…”

There is a lot more in the Supreme Court judgment. At one level, the squabbling Ambani siblings have been given six weeks to re-negotiate the Gas Sale Master Agreement within the broad framework of government policy in a manner in which the rights of three million shareholders of both RIL and RNRL are protected. This will be easier said than done. One will not be surprised if another round of wrangling breaks out.

The bigger issue relates to the government's integrated energy policy and the way in which it safeguards the interests of the country's people and its natural resources. In this context, the last-but-one paragraph of Justice Sudershan Reddy's judgment is critical: “Before we part with the case, we consider it appropriate to observe and remind the GoI (government of India) that it is high time it frames a comprehensive policy/suitable legislation with regard to (the) energy security of India and supply of natural gas under production sharing contracts.”

Many experts, such as Surya P. Sethi, who served as principal adviser, energy, in the Planning Commission, have for long been arguing that the policy vacuum in the country's so-called integrated energy policy needs to be plugged. For instance, if grey areas did not (deliberately?) exist in the formula-based gas pricing mechanism, the government would never have become embroiled in a messy and protracted private dispute as it did.