The Rafale Mystery Deepens : Why did Dassault Invest in An Obscure Anil Ambani Company?

Interview with Ravi Nair - the person behind this story.

Exclusive: Post-Rafale, Dassault Investment in Inactive Anil Ambani Company Gave Reliance Rs 284 Crore Profit

Without any of the publicity which accompanied its smaller investment in a joint venture with Anil Ambani as part of the Rafale deal, the French firm has paid nearly 40 million euros for a 35% stake in an obscure Reliance company.

By Rohini Singh and Ravi Nair in The Wire

New Delhi: Even as Dassault Aviation and Anil Ambani’s Reliance group battle allegations that extra-commercial considerations drove their joint venture on Rafale, regulatory filings in France and India reveal that the French defence major followed its JV with an investment in 2017 of approximately 40 million euros in another Anil Ambani venture that is loss making and has almost zero revenues. The investment translated into a Rs 284 crore profit for the Ambani group company, Reliance Infrastructure, which sold shares in a subsidiary, Reliance Airport Developers Limited (RADL) at a premium.
It is unclear how the valuation for the RADL stake was reached between the two groups or why Dassault would buy a substantial share in an unlisted company that has little to no revenues and has nothing to do with Dassault’s core business.

Public filings by Reliance Infrastructure, a Reliance ADAG group company, show that it sold a 34.7% stake in RADL, a wholly owned subsidiary, to Dassault Aviation in FY 2017-18. The terms of the sale are not known but Reliance said it made a profit of Rs 284.19 crore on the sale of 24,83,923 shares which had a face value of Rs 10 each.

Reliance Airport Developers posted losses of Rs 10.35 lakh for the financial year ending March 2017 and earned revenues of Rs 6 lakh. In the year ending March 2016, the firm had no revenues and posted losses of Rs 9 lakh.

The company has stakes in a clutch of subsidiaries owned by the group. Most of them are loss making and are airport projects that were awarded by the Maharashtra government in 2009 for Rs 63 crore. A Business Standard report dated October 2015 quoted government officials and ministers saying that due to lack of progress in developing these projects by the company a decision was reached to take back the airports. The company also reportedly wanted to get rid of its stakes in these airports but a news report from January 2017 indicated it had changed its mind.

Ironically, while the Maharashtra Airport Development Council (MADC) was prepping to take back charge of the airports due to dissatisfaction with RADL’s progress on the projects, it speedily allotted 289 acres of its land to another group company the same year.

Dassault Aviation’s annual report for 2017 mentions the firm’s acquisition of ‘non listed securities’ including a 34.7% equity participation in Reliance Airport Developers. “In 2017, we also strengthened our presence in India through an acquisition of a 35% stake in Reliance Airport Developers Limited, which operates in the management and development of airport infrastructures,” its report said.

Oddly, the annual report of Reliance Airports posted on the Reliance Infrastructure site notes that Dassault Aviation now holds 34.79% of ordinary shares but when it comes to describing the terms and rights attached to the equity shares, the details have been blanked out.


Screenshot of RADL annual report.

The transaction finds an indirect mention in the Reliance Infrastructure annual report, buried in Note 43 under the exceptional items head, as “profit on sale of investment in Reliance Airport Developers Ltd” of Rs 284.19 crore.

In the Dassault report, the net book value of securities in RADL is stated as 39,962,000 euros. By contrast, the net book value of its securities in DRAL – the joint venture with Reliance for the Rafale – is just 962,000 euros, though presumably it will grow.


Reliance Infrastructure, Annual report for FY 2017

In a recent interview to the Economic Times, Dassault CEO Eric Trappier said Rs 70 crore had been invested in Dassault Reliance Aerospace Limited, Dassault’s JV with the the Anil Ambani group. Of this only 49% is Dassault’s stake.

Filings by Dassault Aviation in France show that besides the Rs 22 crore that Dassault pumped in as equity, it has also given a 4 million euro loan to the JV which roughly converts to Rs 32 crore in Indian rupees. This money, a source in the Anil Ambani group told The Wire off the record, was used by DRAL to pay for its hangar at Mihan. In his interview, Trappier did not mention the money spent for the purchase of a 35% stake in RADL.

How the land was acquired

Prime Minister Narendra Modi announced the Rafale deal on April 10, 2015. In July 2015, Reliance Aerostructure applied to the Maharashtra Airport Development Council for land in its Mihan SEZ in Nagpur. It was allotted 289 acres in August 2015 for Rs 63 crore.

The company later said it would take only 104 acres. While the allotment was done in August 2015, Reliance Aerostructure only paid the dues it owed on July 13, 2017, after missing several payment deadlines.

Reliance Aerostructure was incorporated on April 24, 2015, days after Modi announced the Rafale deal. It was also given a license to manufacture fighter aircraft by the defence ministry in 2016, which opposition parties allege is in violation of government guidelines.

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Filings for financial year 2017 show that Reliance Aerostructure received an inter-corporate deposit of Rs 89.45 crore from Reliance Infrastructure, the same year that Dassault aviation bought 34.79% of Reliance Infrastructure’s stake in Reliance Airport Developers.

From the sequence, it would appear that Reliance Aerostructure used the money received from Reliance Infrastructure to settle its outstanding Rs 38 crore payment with MADC for the land allotted. The dues had been outstanding for more than a year. Filings by Reliance Aerostructure state that the company’s “net worth has been eroded” but was kept as a going concern because of adequate financial support from its promoters. In FY 2017, Reliance Aerostructure posted a loss of Rs 13 crore. The year before that, it posted a loss of Rs 27 crore.

In a recent interview to CNBC, Dassault CEO Eric Trappier had claimed his company chose Reliance ADAG as its offsets partner because it had land available next to an airport. However, the land was only given to Reliance by the state government after it had reached an understanding with Dassault to collaborate on the Rafale.

According to a Dassault press release, Reliance Aerostructure’s joint venture with Dassault Aviation – Dassault Reliance Aerospace Limited (DRAL) – was formally incorporated in 2017 but goes all the way back to April 2015.

The land contribution agreement filed by DRAL with the Registrar of Companies dated July 12, 2018 talks of a sub-lease agreement between Reliance Aerostructure, DRAL and Dassault Aviation. According to this agreement, DRAL, the joint venture partner, would pay Rs 22.8 crore to Reliance as premium for 31 acres of leased property to the joint venture. This debt was converted into “non cash consideration” for 22.8 lakh equity shares of the company. Therefore, the land allotted by the Maharashtra government was used to pay for Reliance’s equity stake in the joint venture company. Dassault aviation gave Rs 21.09 crore cash for its equity stake in the firm.

The Wire has contacted Dassault and Reliance ADAG seeking greater clarity about the land transaction and Dassault’s wider dealings with the Reliance ADAG group, including the valuation of its investment in Reliance Airport Developers Ltd. The story will be be updated with their responses when received.

Note: In an initial version of this article, the euro figure corresponding to RADL’s stated profit of Rs 284 crore was mistakenly stated as 4 million at the prevailing exchange rates in 2017. It is actually 40 million.

The biggest ever fire sale of Indian corporate assets has begun, to tide over bad loans crisis

Piyush Pandey in The Hindu

We are seeing what is effectively India Inc.’s biggest ever fire sale. It’s even bigger than the government’s planned divestment target.

The Reserve Bank of India’s (RBI) has decided to clean up the balance sheets of Indian banks, which are collectively saddled with Rs five lakh crore of bad loans, by the end of this fiscal. So, the banks have started cracking the whip on Indian companies for repayment of loans. For most affected firms and groups, this will mean they will be forced to sell prized assets to repay their ballooning debts.

We are seeing ‘for sale’ tags on airports, roads, ports, steel plants, cement units, refineries, malls, corporate parks, land banks, coal mines, oil blocks, express highways, airwaves, Formula One teams, hotels, private jets, and even status symbol corporate HQs. Substantial stakes in firms, and in some cases entire companies, are on the block.

The Hindu reviewed leading corporate houses with billion-dollar loans riding on them, and the results are startling. The top 10 business house debtors alone owe Rs 5,00,000 crore to the banks. They will be forced to sell assets worth over Rs 2,00,000 crore.

Reliance Group (Anil Ambani)

The Anil Ambani-led Reliance Group alone owes Rs 1,21,000 crore of loans to the banks and had an annual interest liability of Rs 8,299 crore against earnings before income tax of Rs 9,848 crore. Some of the group’s firms, like Reliance Infrastructure and Reliance Defence, don’t earn enough to service the interest outgo.

Assets put on sale by the Reliance Group include about 44,000 telecommunications towers (valued at Rs 22,000 crore) and optic fibre and related infrastructure (Rs 8,000 crore) from Reliance Communications (RCom), its flagship firm. Weighed down by about Rs 40,000 crore of debt, RCom has posted a loss of Rs 154 crore in FY14-15, and has continued to post losses in the first three quarters of FY 15-16, accumulating losses of over Rs 2000 crore until December 31, 2015; it is likely to end that fiscal with a net loss too. The company is valued at Rs 13,440 crore, less than a third of its total debts. However, RCom plans to reduce its debts to Rs 10,000 by selling Rs 30,000 crore of telecom assets.

Reliance Infrastructure (R-Infra) is sitting on a pile of debt of Rs 25,000 crore as of February. In November 2015, it agreed to sell a 49 per cent stake in its electricity generation, transmission and distribution business in Mumbai and adjoining areas to Canadian pension fund Public Sector Pension Investment Board (PSP Investments). The transaction is expected to reduce debt of Rs.7,000 crore attached to the distribution business. It agreed to sell its cement business to Birla Corporation for Rs 4,800 crore in February, and is looking to sell its entire roads portfolio, valued at Rs 9,000 crore, for which three international bidders have been short-listed. R-Infra’s EBIT stands at Rs 1,686 crore, against interest liability of Rs 1,974 crore. Its market capitalisation at Rs 14,476 crore is Rs 10,000 crore lower than its debt. By sale, of cement, road and the Mumbai power distribution businesses, the company expects to be debt free on standalone basis by the end of this fiscal.

Reliance Capital, with debt of Rs 24,000 crore has sold stakes, in phases, in its mutual fund and life insurance businesses to Nippon Life Insurance for Rs 3,461 crore to allow the latter to increase its stake to 49 per cent in each of the businesses. It further plans to raise another Rs 4,000 crore by the end of 2016-17 by selling non-core assets, including proprietary investment book and by inducting a partner in its general insurance business. Reliance Capital’s debt includes its lending portfolio – commercial lending and housing finance- of about Rs 18,000 crore and claims to have a debt-equity ratio of 1.77, the lowest in the industry, as of December 31, 2015.

Mr Ambani is also looking to exit the media and entertainment businesses, under Reliance Broadcast Network Ltd (RBNL), for Rs 1,500 –Rs 2,000 crore.

His foray into defence — the recently-acquired Pipavav Defence & Offshore Engineering, rechristened Reliance Defence — is sitting on debt of Rs 6,800 crore against its current market capitalisation of Rs 4,895 crore. The loss-making company with negative EBIT of Rs 306 crore has an interest liability of Rs 347 crore a year.

Ruia’s Essar group (Shashi and Ravi Ruia)

Shashi and Ravi Ruia’s Essar group has gross debt of Rs 1,01,461 crore. The group is looking to sell about 50 per cent stake of its family silver, i.e., Essar Oil’s 20mtpa (million tonnes per annum) Vadinar refinery, for Rs 25,000 crore. It also plans to bring in a financial partner for its 10mtpa steel business that currently has a debt of Rs 40,000 crore; a 49 per cent stake in the steel facility will be valued at about Rs 25,000 crore. The debt-laden group is also looking to sell stake in its ports business. Essar Steel and Essar Oil each account for one-third of the group debt, and Essar Power, one-fifth.

Adani group (Gautam Adani)

The billionaire Gautam Adani’s Adani group, with Rs 96,031 crore debt, is under pressure to sell its stake in the Abbott Point coal mines, port and rail project. The Adani Group’s debt stands at Rs. 72,000 crore. Last year, Standard Chartered bank had recalled loans amounting to $2.5 billion as part of its global policy of reducing exposure in emerging markets. Global lenders have backed out from funding the $10-billion coal mine development project. State Bank of India has also declined to offer a loan despite signing an MoU to fund the group with $1 billion. An Adani spokesperson declined to offer any comments on the issue.

Jaypee group (Manoj Gaur)

Manoj Gaur’s Jaypee group’s debt is over Rs 75,000 crore. The group has agreed to sell its 20mtpa of cement assets to Kumar Birla-led Ultratech for Rs 15,900 crore. This will leave its listed entities with about 6mtpa of cement capacity, three thermal power plants, one hydropower plant, an expressway project and land parcels. It is looking to sell most of these assets at the right price, but buyers are not easy to come by. Aside from selling stake in its land parcels and the Yamuna Express Highway, the group is looking to sell its remaining cement plants for Rs 4,000 crore and its Bina thermal power plant for Rs 3,500 crore. In the last year, the group has defaulted on payment obligations worth $350 million. Analysts say its capacity to service its debt has not improved.

GMR group (GM Rao)

G.M. Rao’s GMR group was one of the first debt-ridden companies to sell off assets; it has already offloaded stake worth Rs 11,000 crore in its roads, power and coal assets in the last two years. Despite this, its total debt has actually gone up: from Rs 42,349 crore at the end of FY13 to Rs 47,738 as of March, 2015. The group is planning to raise about Rs 5,000 crore this year by selling land parcels, energy assets and stake in airport subsidiary. Last month, it announced it was selling part of a road project in Karnataka, to help reduce debt by more than Rs 1,000 crore. It also plans to sell 30 per cent of its stake in its airport arm, which is valued about Rs 10,000 crore.

Lanco group (L Madhusudhan Rao)

The Lanco group has debts of Rs 47,102 crore. It completed the sale of its Udupi plant in FY16 for Rs 6,300 crore (15 per cent of FY15 debt). Debt levels have continued to rise, up 6 per cent in FY15. The group plans to sell power assets worth Rs 25,000 crore to de-leverage its balance sheet and retire debts of about Rs 18,000 crore. It is also planning to sell a one-third stake in the Australian coal mine it acquired in 2011 for $750 million.

Videocon group (Venugopal Dhoot)

Despite the Videocon group selling its stake in its Mozambique gas fileds for Rs 15,000 crore, gross debt has continued to rise: it is up 10 per cent year-on-year to Rs 45,405 crore, while net debt has remained largely flat at Rs 39,600 crore. Last month, it sold its spectrum to Bharti Airtel for Rs 4,600 crore. “If you minus last month’s spectrum sale amount of Rs 4,600 crore which will be paid directly to the banks, then debt comes to Rs.34,000 crore. To decrease debt further, we will be liquidating assets worth Rs 5,000 crore this year so the net debt of the group will be around Rs 29,000 crore,” Videocon Industries chairman Venugopal Dhoot told The Hindu adding that out of this net debt, Rs.21,000 crore has been taken for oil and gas ventures in Brazil, Indonesia and across the globe, where the group and ita partners have discovered oil and gas reserves. So, domestic debt of around Rs 8,000 crore will be serviced.

GVK group (G.V. Krishna Reddy)

To repay some of its debt of Rs 34,000 crore, the GVK group is in talks to sell 49 per cent of its airport subsidiary, which has an enterprise value of Rs 10,000 crore. Last month, it agreed to divest its 33 per cent stake in BIAL to Fairfax India Holdings Corp for an aggregate investment of Rs 2,149 crore. The company is also exploring the possibility of bringing in equity investors into Hancock Infrastructure Pvt Ltd, its holding company for its rail and port projects in Australia. A GVK spokesperson in reply to an e-mail query by The Hindu said, “As part of our corporate policy, we do not comment on any speculation in the media. While it's public knowledge that we are considering various options for reducing our debt, we regret we cannot respond to any of your queries.”

Reliance Industries (Mukesh Ambani)

India’s largest debtor, Mukesh Ambani’s Reliance Industries (RIL), has a total debt of Rs 1,87,079 crore (up from Rs 62,500 crore as on March 31, 2010, mainly because of the Rs 1,50,000 crore roll-out of Reliance Jio), the biggest among all corporate houses, and the largest ever in Indian corporate history. But it’s also one of the best-rated firms in servicing its interest, so banks are happy to offer RIL loans at competitive rates. Analysts believe that huge debt may weigh down the profitability due to interest outgo and depreciation after the commercial roll-out of Reliance Jio, if it is not able to scale up quickly.

Company	Gross debt (2014-15)	Assets for sale (Rs.Cr)
Reliance Industries (Mukesh Ambani)	187070	-

Tata Group

The Tata Group, India’s largest corporate group, with over 100 companies, wants to sell its UK steel business, which came as part of the $12.9 billion acquisition by Tata Steel of Corus in 2007. Tata Steel had invested over $ 2 billion as capital expenditure in its UK steel business and it has now written down the value of its investment of $2.9 billion, meaning the value of its UK steel business is almost zero. The company’s consolidated debt was $10.7 billion on September 30, 2015, with the total long-term debt of its Europe business at about $4.3 billion.

The others

Among other corporates,

• Naveen Jindal-led Jindal Steel and Power Limited has agreed to sell a 1,000 MW power plant to his elder brother Sajjan Jindal at an enterprise value of Rs 6,500 crore and is looking to sell other assets to reduce debts of Rs 46,000 crore.

• DLF Ltd, India’s most valuable property developer, has sought expressions of interest from several top global investors to sell a 40 per cent stake in its rental assets arm as it seeks to pare debt. The rental assets arm holds about 20 million sq.ft of leased-out office space and is valued at about $2 billion,

• India's largest sugar producer Shree Renuka Sugars Ltd has declared its Brazilian unit bankrupt and has filed for protection in the country. The company plans to fully exit from the National Commodity & Derivatives Exchange (NCDEX), as part of a strategy to sell all its non-core assets to reduce debt.

• The Sahara group’s sale list is long: 86 real estate assets, a 42 per cent stake in Formula 1 team Force India, four airplanes, and its hotels: the Sahara Hotel in Mumbai, Grosvenor House, London, the New York Plaza Hotel, and The Dream New York Hotel.

• Almost all of Vijay Mallya's assets are on sale by the banks.

Quenching the fire

Despite all the desperate deleveraging, the financial stress at these groups has intensified: all of them saw further increases in debt in FY15. These debts have grown seven-fold over the past eight years and account for 12 per cent of system loans, according to Credit Suisse

As groups like Jaypee and GMR cut back on capex and sold assets, their debt and EBITDA have deteriorated further, mainly because they sold their best assets, which were contributing to as much as 70 per cent of their EBITDA. For Jaypee, Lanco, Essar, and GMR, about half their debt has already been downgraded to Default by rating agencies. For GMR and Videocon, absolute debt has continued to rise despite asset sales. Lanco’s Udipi plant sales reduced debt levels by 15 per cent, but that project contributed to 69 per cent of its FY15 EBITDA. Videocon too hasn’t seen any reduction in debt levels.

Investment advisor SP Tulsian said that when you have gangrene in your body, you need to chop off that part to survive; “Similarly, Indian firms need to sell off assets to deleverage their balance sheets or they will die sooner or later. For, banks will take control of their assets and sell them to recover dues.”

However, Morgan Stanley, the global financial services firm believes that the worst of India's corporate debt crisis seems to be over as companies are reporting positive Free Cash Flow (FCF) for only the second time in two decades.

In its Asia Insight Report tilted “India – Macro meets Micro,” Morgan Stanley said that the distress in corporate India's balance sheet is unchanged for the past four years and lists out the following problems of corporate sector:

It’s a balance sheet recession

-Corporate debt to equity is at all-time high

-The debt service ratio is at a new low. The BSE 500 index companies have about 4 times their operating income to pay interest expenses compared to around 10 times in the boom years

-Interest to sales is approaching an all-time high, hurting net margins and impeding debt serviceability.

-Excess return on capital (ROCE minus the prime lending rate) is at all-time lows and in negative territory. This means that companies are earning less on their investment than the cost of their debt.

Tulsi Tanti’s Suzlon became the first casualty of the banks' recovery drive. In 2015, it was forced to sell its largest international subsidiary, Senvion, bought for €1.4 billion euro in 2007, for around €1.1 billion. The sale helped Suzlon cut down its debt of Rs 16,500 crore to Rs 10,500 crore, and reduce its interest liability from Rs 1,600 crore to Rs 800 crore a year. More companies from indebted sectors — power, infra, steel, realty for example — will be forced to emulate Suzlon and go for rapid asset sale in the hope of staying afloat until better times.

The Modi Index

Great skit on 2G, MrsG and the laws of science

Pricing Public Transport - India

Editorial in The Hindu 

The launch of the metro railway service in Mumbai, which has enhanced public transport options in the teeming city, would have normally called for unqualified appreciation. However, the row over fares between the State government and Reliance Infrastructure, the latter holding the majority share in this public-private partnership project, has dampened the enthusiasm and in fact raised serious concerns. The outcome of this dispute, which the courts will determine, could affect the future functioning of the project and have a significant bearing on other metro rail schemes that seek private funding and participation. The 11.4-km elevated Mumbai Metro line has improved connectivity and reduced travel time for thousands of passengers. Just before the service was launched, Reliance Infrastructure steeply revised the fares and increased the range of fares, originally fixed at Rs.9 to Rs.13, to Rs.10 to Rs.40. The government has opposed this since it is higher than the pre-agreed fare and decided without any consultation. Reliance Infrastructure has defended the action, stating that under the Metro Railways Act it has the authority to fix fares. The increase in the project cost from Rs.2,356 crore to Rs.4,321 crore and higher operational costs had warranted the change, it asserted.

Almost every metro rail project in the country has overshot the projected cost. Companies often tend to underestimate the cost and inflate user-figures to convince funding agencies that travel by metro rail would be relatively inexpensive. Later, they complain of cost overruns and demand higher allocations. Ticket prices are then raised and the travelling public bears the burden of such poor planning. Fares should be affordable, particularly to the large number of lower-income group users, and should factor in the less visible benefits that accrue from the service. Increasing the use of public transport relieves road congestion, reduces pollution and cuts fuel consumption. Realising this, cities such as Tallinn, the capital of Estonia, have made public travel free for its citizens. Even if Mumbai and other Indian cities do not want to take such a radical route, and decide periodically to review fares, the process should be transparent and fair — more so when the private sector operates public transport. Striving to balance subsidy and revenue is understandable, but high prices should not affect transport choices. Alternative financing options must be explored. Many countries have mobilised funds by imposing additional charges for using private cars, which pollute more and occupy road space disproportionately. The urban future lies in promoting good public transport, and its success depends on fair pricing and quality service.

Arundhati Roy explains how corporations run India and why they want Narendra Modi as prime minister

by Charlie Smith on Mar 30, 2014 at 1:51 pm

Indian author Arundhati Roy wants the world to know that her country is under the control of its largest corporations.

"Wealth has been concentrated in fewer and fewer hands," Roy tells the Georgia Straight by phone from New York. "And these few corporations now run the country and, in some ways, run the political parties. They run the media."

The Delhi-based novelist and nonfiction writer argues that this is having devastating consequences for hundreds of millions of the poorest people in India, not to mention the middle class.

Roy spoke to the Straight in advance of a public lecture on Tuesday (April 1) at 8 p.m. at St. Andrew's–Wesley United Church at the corner of Burrard and Nelson streets. She says it will be her first visit to Vancouver.

In recent years, she has researched how the richest Indian corporations—such as Reliance, Tata, Essar, and Infosys—are employing similar tactics as those of the U.S.-based Rockefeller and Ford foundations. 

She points out that the Rockefeller and Ford foundations have worked closely in the past with the State Department and Central Intelligence Agency to further U.S. government and corporate objectives. 

Now, she maintains that Indian companies are distributing money through charitable foundations as a means of controlling the public agenda through what she calls "perception management".

This includes channelling funds to nongovernmental organizations, film and literary festivals, and universities.

She acknowledges that the Tata Group has been doing this for decades, but says that more recently, other large corporations have begun copying this approach.

Private money replaces public funding

According to her, the overall objective is to blunt criticism of neoliberal policies that promote inequality.

"Slowly, they decide the curriculum," Roy maintains. "They control the public imagination. As public money gets pulled out of health care and education and all of this, NGOs funded by these major financial corporations and other kinds of financial instruments move in, doing the work that missionaries used to do during colonialism—giving the impression of being charitable organizations, but actually preparing the world for the free markets of corporate capital."

She was awarded the Booker Prize in 1997 for The God of Small Things. Since then, she has gone on to become one of India's leading social critics, railing against mining and power projects that displace the poor.

She's also written about poverty-stricken villagers in the Naxalite movement who are taking up arms across several Indian states to defend their traditional way of life.

"I'm a great admirer of the wisdom and the courage that people in the resistance movement show," she says. "And they are where my own understanding comes from."

One of her greatest concerns is how foundation-funded NGOs "defuse people's movements and...vacuum political anger and send them down a blind alley".

"It's very important to keep the oppressed divided," she says. "That's the whole colonial game, and it's very easy in India because of the diversity."

Roy writes a book on capitalism

In 2010, there was an attempt to lay a charge of sedition against her after she suggested that Kashmir is not integral to India's existence. This northern state has been at the centre of a long-running territorial dispute between India and Pakistan.

"There's supposed to be some police inquiry, which hasn't really happened," Roy tells the Straight. "That's how it is in India. They...hope that the idea of it hanging over your head is going to work its magic, and you're going to be more cautious."

Clearly, it's had little effect in silencing her. In her upcoming new book Capitalism: A Ghost Story, Roy explores how the 100 richest people in India ended up controlling a quarter of the country's gross-domestic product.

The book is inspired by a lengthy 2012 article with the same title, which appeared in India's Outlook magazine.

In the essay, she wrote that the "ghosts" are the 250,000 debt-ridden farmers who've committed suicide, as well as "800 million who have been impoverished and dispossessed to make way for us". Many live on less than 40 Canadian cents per day.

"In India, the 300 million of us who belong to the post-IMF 'reforms' middle class—the market—live side by side with spirits of the nether world, the poltergeists of dead rivers, dry wells, bald mountains and denuded forests," Roy wrote.

The essay examined how foundations rein in Indian feminist organizations, nourish right-wing think tanks, and co-opt scholars from the community of Dalits, often referred to in the West as the "untouchables".

For example, she pointed out that the Reliance Group's Observer Research Foundation has a stated goal of achieving consensus in favour of economic reforms.

Roy noted that the ORF promotes "strategies to counter nuclear, biological and chemical threats". She also revealed that the ORF's partners include weapons makers Raytheon and Lockheed Martin.

Anna Hazare called a corporate mascot

In her interview with the Straight, Roy claims that the high-profile India Against Corruption campaign is another example of corporate meddling.

According to Roy, the movement's leader, Anna Hazare, serves as a front for international capital to gain greater access to India's resources by clearing away any local obstacles.

With his white cap and traditional white Indian attire, Hazare has received global acclaim by acting as a modern-day Mahatma Gandhi, but Roy characterizes both of them as "deeply disturbing". She also describes Hazare as a "sort of mascot" to his corporate backers.

In her view, "transparency" and "rule of law" are code words for allowing corporations to supplant "local crony capital". This can be accomplished by passing laws that advance corporate interests.

She says it's not surprising that the most influential Indian capitalists would want to shift public attention to political corruption just as average Indians were beginning to panic over the slowing Indian economy. In fact, Roy adds, this panic turned into rage as the middle class began to realize that "galloping economic growth has frozen".

"For the first time, the middle classes were looking at corporations and realizing that they were a source of incredible corruption, whereas earlier, there was this adoration of them," she says. "Just then, the India Against Corruption movement started. And the spotlight turned right back onto the favourite punching bag—the politicians—and the corporations and the corporate media and everyone else jumped onto this, and gave them 24-hour coverage."

Her essay in Outlook pointed out that Hazare's high-profile allies, Arvind Kerjiwal and Kiran Bedi, both operate NGOs funded by U.S. foundations.

"Unlike the Occupy Wall Street movement in the US, the Hazare movement did not breathe a word against privatisation, corporate power or economic 'reforms'," she wrote in Outlook.

Narendra Modi seen as right-wing saviour

Meanwhile, Roy tells the Straight that corporate India is backing Narendra Modi as the country's next prime minister because the ruling Congress party hasn't been sufficiently ruthless against the growing resistance movement.

"I think the coming elections are all about who is going to crank up the military assault on troublesome people," she predicts.

In several states, armed rebels have prevented massive mining and infrastructure projects that would have displaced massive numbers of people.

Many of these industrial developments were the subject of memoranda of understanding signed in 2004.

Modi, head of the Hindu nationalist BJP coalition, became infamous in 2002 when Muslims were massacred in the Indian state of Gujarat, where he was the chief minister. The official death tollexceeded 1,000, though some say the figures are higher.

Police reportedly stood by as Hindu mobs went on a killing spree. Many years later, a senior police officer alleged that Modi deliberately allowed the slaughter, though Modi has repeatedly denied this.

The atrocities were so appalling that the American government refused to grant Modi a visitor's visa to travel to the United States.

But now, he's a political darling to many in the Indian elite, according to Roy. A Wall Street Journal report recently noted that the United States is prepared to give Modi a visa if he becomes prime minister.

"The corporations are all backing Modi because they think that [Prime Minister] Manmohan [Singh] and the Congress government hasn't shown the nerve it requires to actually send in the army into places like Chhattisgarh and Orissa," she says.

She also labels Modi as a politician who's capable of "mutating", depending on the circumstances.

"From being this openly sort of communal hatred-spewing saccharine person, he then put on the suit of a corporate man, and, you know, is now trying to play the role of the statesmen, which he's not managing to do really," Roy says.

Roy sees parallels between Congress and BJP

India's national politics are dominated by two parties, the Congress and the BJP.

The Congress maintains a more secular stance and is often favoured by those who want more accommodation for minorities, be they Muslim, Sikh, or Christian. In American terms, the Congress is the equivalent of the Democratic Party.

The BJP is actually a coalition of right-wing parties and more forcefully advances the notion that India is a Hindu nation. It often calls for a harder line against Pakistan. In this regard, the BJP could be seen as the Republicans of India.

But just as left-wing U.S. critics such as Ralph Nader and Noam Chomsky see little difference between the Democrats and Republicans in office, Roy says there is not a great deal distinguishing the Congress from the BJP.

"I've said quite often, the Congress has done by night what the BJP does by day," she declares. "There isn't any real difference in their economic policy."

Whereas senior BJP leaders encouraged wholesale mob violence against Muslims in Gujarat, she notes that Congress leaders played a similar role in attacks on Sikhs in Delhi following the 1984 assassination of then–prime minister Indira Gandhi.

"It was genocidal violence and even today, nobody has been punished," Roy says.

As a result, each party can accuse the other of fomenting communal violence.

In the meantime, there are no serious efforts at reconciliation for the victims.

"The guilty should be punished," she adds. "Everyone knows who they are, but that will not happen. That is the thing about India. You may go to prison for assaulting a woman in a lift or killing one person, but if you are part of a massacre, then the chances of your not being punished are very high."

However, she acknowledges that there is "some difference" in the two major parties' stated idea of India.

The BJP, for example, is "quite open about its belief in the Hindu India...where everybody else lives as, you know, second-class citizens".

"Hindu is also a very big and baggy word," she says to clarify her remark. "We're really talking about an upper-caste Hindu nation. And the Congress states that it has a secular vision, but in the actual playing out of how democracy works, all of them are involved with creating vote banks, setting community against community. Obviously, the BJP is more vicious at that game."

Inequality linked to caste system

The Straight asks why internationally renowned authors such as Salman Rushdie and Vikram Seth or major Indian film stars like Shahrukh Khan or the Bachchan family don't speak forcefully against the level of inequality in India.

"Well, I think we're a country whose elite is capable of an immense amount of self-deception and an immense amount of self-regard," she replies.

Roy maintains that Hinduism's caste system has ingrained the Indian elite to accept the idea of inequality "as some kind of divinely sanctioned thing".

According to her, the rich believe "that people who are from the lower classes don't deserve what those from the upper classes deserve".

Her comments on corporate power echo some of the ideas of Canadian activist and author Naomi Klein.

"Of course, I know Naomi very well," Roy reveals. "I think she's such a fine thinker and of course, she's influenced me."

Roy also expresses admiration for the work of Indian journalist Palagummi Sainath, author of the 1992 classic Everybody Loves a Good Drought: Stories from India's Poorest Districts.

However, she suggests that the concentration of media ownership in India makes it very difficult for most reporters to reveal the extent of corporate control over society.

"In India, if you're a really good journalist, your life is in jeopardy because there is no place for you in a media that's structured like that," Roy says.

On occasions, mobs have shown up outside her home after she's made controversial 

statements in the media.

She says that in those instances, they seemed more interested in performing for the television cameras than in attacking her.

However, she emphasizes that other human-rights activists in India have had their offices trashed by demonstrators, and some have been beaten up or killed for speaking out against injustice.

Roy adds that thousands of political prisoners are locked up in Indian jails for sedition or for violating the Unlawful Activities Prevention Act.

This is one reason why she argues that it's a fallacy to believe that because India holds regular elections, it's a democratic country.

"There isn't a single institution anymore which an ordinary person can approach for justice: not the judiciary, not the local political representative," Roy maintains. "All the institutions have been hollowed out and just the shell has been put back. So democracy and these festivals of elections is when everyone can let off steam and feel that they have some say over their lives."

In the end, she says it's the corporations that fund major parties, which end up doing their bidding.

"We are really owned and run by a few corporations, who can shut India down when they want," Roy says.

Time to get cracking on fracking

S A Aiyer

After years of consideration, the government has come out with a disappointing shale gas policy. The public sector companies, ONGC and Oil India, will be allowed to drill for shale oil and gas in blocks they already have, but fresh auctions will be conducted for all other shale deposits. Private sector companies will not be allowed to exploit shale formations in their existing blocks. This means delay and unwarranted red tape. There is little reason to have separate auctions for conventional and non-conventional oil and gas.

Shale gas and oil have changed the face of the US. Huge increases in production have taken the US close to self-sufficiency in oil, and created a big gas surplus. By 2020, the US may get all its energy needs from its own fields and those of Mexico and Canada, eliminating the need for oil from the Middle East or Latin America. India’s prospects are much poorer. Yet preliminary data suggest that India has 63 trillion cu. ft of shale gas, 20 times as much as in Reliance’s offshore field. Additional prospecting could raise reserves considerably.

One good feature: the new policy mandates auctions based on simple production sharing between the explorer and government. The current cost-plus system has led to endless disputes in Reliance’s case. This new policy will apply to conventional as well as non-conventional deposits.

The question remains, why treat shale gas as different from conventional natural gas?

Gas and oil have been formed by the decay under great pressure and heat of marine life trapped in sands millions of years ago. Conventional oil and gas are produced by drilling into rock formations that are porous (lots of holes in the rock) and permeable (the holes are interconnected, letting the oil/gas to flow out under its own pressure). Limestone and sandstone are rocks with good flow rates. But other rock formations can be “tight”, having low porosity and permeability, in which oil does not flow easily.

This is true of shale and some other rock formations. These formations have long been known to contain enormous deposits, but extracting them was earlier not economically viable. Then a new technology, fracking, was devised in the 1990s. It used horizontal drilling and highpressure water with sand to crack open tight formations. This improved the flow enough to make drilling viable.

Now, many oil and gas deposits lie in multiple layers of different rocks. Thick sandstone and limestone formations may be interspersed with shale layers. The oil and gas lie trapped in all the layers, but conventionally were extracted only from the easy-flowing ones. Now they can be extracted from the tight layers too.

Does it make sense to decree that an explorer can touch only conventional strata and not tight layers, which should be auctioned to a separate company? Is it logical to have two companies drilling in the same block, one in the limestone strata and another in the shale? Apart from the duplication in cost and effort, it could lead to endless disputes and litigation. It could jeopardize safe field development too.

The US makes no distinctions. An explorer strikes deals with landowners, and can extract any gas or oil from any sort of rock. After all, nobody knows in advance whether oil or gas will be discovered, and if so in what sort of rock.

Exploration policy in India should similarly have no distinctions in exploration policy. However, fracking will need separate environmental clearance, because it poses special challenges.

Fracking needs very large quantities of water, mixed with chemicals, for blasting open tight formations. Waste water after fracking could contain toxic chemicals, and so must not be dumped.

To begin with, fracking in India can be limited to areas with abundant water. Only deep aquifers should be tapped for fracking, avoiding shallow aquifers used for irrigation or drinking water. Maybe sea water can be used in coastal locations.

Second, waste water after fracking must be recycled for use in new wells, not dumped. This will not only check toxic hazards but reduce the water needed for additional wells. Only certified safe chemicals should be used for fracking.

If surplus fracked water is pumped underground for disposal, it can cause small tremors (misleadingly reported as “earthquakes” by activists). This can be managed by gradual, deep disposal.

Activists will undoubtedly ask the courts to ban fracking, even though not a single case of contamination has been established after two decades in the US. The government should get an advance ruling on this from the Supreme Court, clarifying conditions under which fracking can take place. This may take a few years, so we need to start forthwith.

Reliance Energy Pricing - Selling the dream for a song

SURYA P. SETHI in the hindu

  

The Hindu

 

The government has spared no effort to convince the public that its gas pricing formula, skewed in favour of Reliance, will be the solution to India's energy needs

Politicians worldwide are dream merchants. They sell dreams. Indian politicians are, of course, second to none in this business and have indeed perfected this art form. Their success in selling pipe dreams is perhaps a measure of the depth of our despair as a nation. Can any Indian, my age, forget the euphoria that the dream of “Garibi Hatao” created in the 1970s? Some 40 plus years later, the same Congress party is telling the nation that 70 per cent of people now need food subsidy to survive. Of course, its minions in the Planning Commission are running out of newly sharpened pencils convincing the nation that poverty has reduced significantly. They see no contradiction between the claimed lowering of poverty and the proposed food security bill that has its foundation in the fact that 70 per cent of Indians cannot even buy sufficient food to survive today.

Rangarajan formula

Veerappa Moily, an old Congress satrap, is a highly decorated warrior of many election battles. As an experienced dream merchant, he is selling the Rangarajan formula for pricing gas as the panacea to India’s energy security woes. No one has answered any of the direct questions that I have asked in my four articles in The Hindu since the Rangarajan Committee report surfaced. However, deceptive claims have kept appearing in the press about the wisdom of pricing natural gas as proposed by Dr. Rangarajan. And since no one was buying their arguments, the powers-that-be took out their most lethal weapon — the pen of the Honourable Minister himself to destroy non-believers like myself. Unfortunately, some of the statements in Mr. Moily’s op-ed of August 7, 2013 in the Times of India come straight out of a recent Annual Report of Reliance.

My issue is with our dream merchants and not with Reliance for it, like any private enterprise, responds efficiently and effectively to shape the prevailing environment and maximise profits. So let me cut short the song and dance and pose some straight questions to the Honourable Minister.

1. Can the Honourable Minister list the $100 billion that Indian companies have invested or committed to date for oil and gas assets overseas? The actual investment to date is under $25 billion and I honestly wish it was four times higher as claimed by the Honourable Minister. Although there are huge cans of worms under some of the overseas acquisitions we have made, the truth is that for every dollar invested overseas we have accrued more oil and gas reserves than for the same dollar invested in the Indian sedimentary basin. Large and serious global investors in oil and gas go where the prospects are the best. I am proud that despite a few questionable deals, the Indian public sector (primarily OVL) took the lead in this while the domestic private sector concentrated on India — an environment it could efficiently and effectively manage for much higher monetary gains (not resource accretion).

2. Can the Honourable Minister name any country in the world that offered investors from India or elsewhere a formula such as that proposed by the Rangarajan Committee or, for that matter, a formula such as the one currently in use in India to lure exploration and production investments in conventional natural gas or oil?

3. Despite the price reforms in Brazil and China cited by the Honourable Minister, do either of these countries or for that matter any country in the world provide the kind of guaranteed well head price for conventional natural gas that we have been paying under the current formula or promising to pay under the Rangarajan formula from April 2014? Can the Honourable Minister name a single well head in the world that is currently receiving $8.40/MMBTU or anywhere close to it for conventional natural gas?

Doubtful claims

4. The Honourable Minister gives several numbers about potentially higher domestic productions that could have been realised by end-2013 and by 2014-15 from KG-D6 and the likely savings in LNG imports. The Honourable Minster blames his own government for failure to give timely approvals to Reliance to achieve these outputs. The validity of these claims, especially the basis for estimating avoided LNG imports, remains in doubt but, more importantly, is the Honourable Minister trashing the various findings of the CAG and the Parliamentary Committee on KG-D6? Is the Honourable Minister trashing the findings of his predecessor and the reports of his own Ministry and the DGH?

5. The Honourable Minister promises an additional production of 40 MMSCMD of gas annually “starting” 2016-17 and savings of $65 billion in LNG imports. This outcome, the Honourable Minister informs, is the direct result of the changes he has instituted in the way his Ministry had been operating and the use of the Rangarajan formula for pricing conventional natural gas at the well head. Again, leaving aside the dubiousness of the estimated savings on LNG imports, let me ask the Honourable Minster if he can guarantee the promised additional output. Will this additional output come from the existing fields or new fields with new investments? Will the additional output result from RIL belatedly fulfilling its long unmet commitments under the addendum to the agreed initial development plan as detailed by the CAG? Finally, will this additional production come from acreage that should have been relinquished years ago as pointed out by the CAG?

In closing, the Honourable Minister lets fly a “conservative” pipe dream of 100 tcf of gas unlocking “$1 trillion in value” — never mind the details or the basis. At IIM-Ahmedabad, one of my very famous professors always said that a policymaker must have her/his head in the clouds but the feet must remain firmly on the ground. Since my infancy, my mother always told me that thieves have no feet. Neither that famous professor nor my illiterate mother is alive today for me to ask them if dream merchants with heads in the clouds too have no feet!