Analysis

SC Judgment: Gas Without Substance

The Supreme Court judgment on the dispute between the Ambani brothers is hugely disappointing. One expected the Court to raise the issue to the level of principle and address its complexities. Instead the SC confined its attention to this singular dispute. It ignored the principles involved in the larger issue of how assets that belong to the nation may be priced. The Court ruled that the government had the final say on the pricing. This led Petroleum Minister Murli Deora to remark with satisfaction that the judgment had given the right to the Centre to “decide the price of gas”. Does that mean that in future the government will be able to arbitrarily decide the price of gas? This possibility has already alarmed economists. They fear that the exclusion of market realities potentially implicit in such unfettered power given to the government could have deleterious results in the future.

The SC missed the wood for the trees. The issue under dispute was how national assets should be priced.

The most glaring aspect that created the current gas pricing dispute was totally overlooked by the Court. Giving the government power to have the final say in the pricing would have little impact on ground realities if Reliance Industries Limited (RIL) were to wield overwhelming influence over decisions of the central cabinet. According to many critics it does. The challenge not addressed by the SC was how to reconcile government control with the market trends to determine an equitable price.


This can be accomplished only if the government can exercise its final authority while market forces are allowed to work. In the present case market forces can be totally ignored because there is complete monopoly in the gas sector. The root cause of the problem ignored by the SC could be traced to the arbitrary and highly questionable manner in which the government withdrew the public owned Oil and Natural Gas Commission (ONGC) from the Krishna-Godavari gas project to allow RIL full monopoly control. There is a Competition Commission established to ensure that monopoly does not distort market forces. Was it sleeping? As long as monopoly in the gas sector does not end, whether through re-induction of ONGC or by attracting more players in the gas exploration sector, the distortions in the pricing of gas will continue to recur. The SC judgment may not be the end of the story. 

08-May-2010

More by :  Dr. Rajinder Puri

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