The Nexus of Corruption: Reliance and Government
C R Sridhar
‘A government, for protecting business only, is but a carcass, and soon falls by its own corruption and decay.’ - Amos Bronson Alcott, American Educator.
One of the common myths circulated in Indian mainstream media is about the inherent dynamism of the Private sector, which offers a refreshing contrast to the venal, corrupt and mendacious class of politicians and government officials. The Captains of Industries are sympathetically portrayed as dynamic, hard working and enterprising people who are thwarted by soul stifling regulation imposed by the Government. Unlike the moribund Public Sector, say the business friendly media, the Private Sector is efficient and creates a big pie in the economy. But unfortunately, like all myths, it has elements of truth but deceives us by not presenting the whole picture.
While there appears to be no dearth of books praising the virtues of Business Magnates, there are few books documenting the corrupt nexus between Big Business and Big Government. One of the most remarkable books to emerge in the Indian publishing scene in recent times is Reliance- The Real Natwar written by Arun K. Agrawal. This book is an unflattering study of the behemoth Reliance Group and its alleged loot of public money with the connivance of politicians and bureaucrats in the government.
The spotlight of the book is on the alleged involvement of Reliance Petroleum Limited (RPL) in the Iraq oil-for-food scam. As the author says in his book,
‘This book has its origin, in the compulsion, born of exasperation, experienced by the author to record the failure- or, more accurately, the self-serving refusal – of the Indian political and administrative system to investigate the award of extremely lucrative oil contracts under the United Nations- administered Oil- for-Food programme in Iraq to RPL in transactions manifestly driven by kickbacks/ bribery and bipartisan political patronage.’
Mr Agrawal, a lawyer and activist, has impressive credentials to his credit having exposed corporate-government scams in the past. He filed a PIL against the 1000MW Cogentrix Power Project in Karnataka alleging that the company with a capital of only forty lakh was awarded the power project by the government of Karnataka without any competitive bidding. When the game was up Cogentrix abandoned the project, which had inflated capital costs, saving the Indian public crores of Rupees. He was also instrumental in preventing the transfer of the highly profitable Alamatti Power Project in Karnataka to the Private sector, which was built with public money. As a consultant to Prasar Bharati, he unearthed the cricket telecast scam which saved twenty crores for Prasar Bharati. Justifiably, the author concentrates his ire on government policies, which bills costs to the public while the profits are pocketed by the private sector.
The Oil-for-Food scam
The lingering public memory of this scam as a political fallout of the Volcker Report involving Mr Natwar Singh, his son Jagat Singh, family friend Andaleeb Sehgal, Asad Khan (son of Congress politician) and the Andaleeb-owned Hamdaan Exports Limited is a distorted picture which is complicated by the alleged involvement of the Congress Party named as non-contractual beneficiary in the Volcker Report. But the prime beneficiary of the scam was Reliance Petroleum Industry, which got off scot-free without any investigation whatsoever.
Perhaps it would be necessary to have an historical perspective on the Oil for Food scam to understand the full ramification of the scam. The story begins with the military misadventure of Saddam Hussein in Kuwait. Even though a cease-fire was agreed by Iraq in February 1991, after her expulsion from Kuwait, the Security Council kept in place one of the cruelest sanctions, which caused untold hardship to the Iraqi people. As the International public opinion mounted against the UN sanctions, the UN Security Council decided to lessen the hardship of the sanction by establishing Food for oil programme in 1995 under resolution no. 986 as a temporary measure to provide for the humanitarian needs of the Iraqi people.
The Oil for Food programme allowed Iraq to export oil to parties registered with UN and the use of the proceeds of oil sale by UN to pay for the food and medicines imported by Iraq, after deducting reparation, war compensation and commission. The programme started from 1996 and completed 13 phases until Saddam was toppled in 2003.
However the Oil for Food programme became a hotbed of corruption involving many highly placed UN officials who turned a blind eye to the irregularities of the programme, which led to the skimming off huge sums of money to the relatives of UN officials, Iraqi officials and oil companies all over the world.
The opportunity of corruption lay in the fact that the Iraqi Oil was sold at a price less than international rates. The difference in pricing of amounts actually paid to UN and the prevailing international price of oil was split between Iraqi officials (bribes/ surcharge), political allottees (commission) and the balance of profits to the traders and financiers.
The lid was blown off the scam when a Committee was appointed to go into the murky dealing of the UN programme. This Committee was headed by Paul Volcker who was former Chairman of Federal Reserve (US). The report of the Committee opened the Pandora’s box as Table III of the report identified three non-contractual beneficiaries, which had paid bribes/ surcharge to the Iraqi officials. The fourth beneficiary Mr Bhim Singh was absolved, as he did not lift even a single barrel of oil. In the report the Natwar–Congress combine lifted 2.93 million barrels, while Reliance lifted 15.78 million barrels for which it paid a bribe of US$3.57 million. 1
Making scapegoats of lesser criminals is a national pastime while bigger fish go scot-free. In fierce parliamentary debates that followed the disclosure, there were fingers pointed at Sonia Gandhi who had just recovered from the whiff of cordite fumes of Bofors Guns. The BJP targeted the Congress Party for paying bribes and demanded its resignation. Other members asked for a through probe and made impassioned speeches for the punishment of the guilty. As the top leaders of the Congress Party felt jittery a plot was hatched to make a scapegoat of Mr Natwar Singh who was a Minister for External Affairs. In a damage control operation the Congress party appointed Mr R.S. Pathak, an eminent jurist, who served as the Chief Justice of India and also as a judge in the International Court of Justice at The Hague to institute an enquiry into the Oil for Food programme. The terms of reference of the R.S Pathak Inquiry Authority was restricted to two non-contractual beneficiaries, namely, the Congress Party and Mr Natwar Singh. The significant omission was Reliance Petroleum Limited, which was the largest beneficiary of Oil for Food scam.
Mr Natwar Singh whose wrongdoing was minor when compared to Reliance Petroleum Limited was sacrificed on the altar of expediency, as he was not a fundraiser for the Congress party unlike the Reliance Group, which had friends in high places. The commission of 70 lakhs of rupees made by Andaleeb Sehgal certainly involved Natwar Singh who could be accused of using his political connections to favour his son and his crony Andy by providing letters of introduction to the Iraqi authorities. The paltry gain for which Natwar Singh damaged his political future astounded political observers in Delhi. The fact that Natwar Singh was not given the option of disowning his son and leaving political life in blaze of glory sent tongues wagging in political circles. This was indeed strange given the fact that no part of the commission did end up in the personal bank accounts of Natwar Singh. Apparently it was necessary for the powers in the Congress Party to make an example of Natwar Singh and squelch the scandal. Predictably, the Inquiry fixed the blame on Natwar Singh and he was forced to resign.
Parliamentary cover up
In the speeches made by Members of Parliament, the name of Reliance Petroleum Limited never figured in the controversy. If it was mentioned in passing that could be attributed to Mr Sitaram Yechury who to his credit raised the involvement of Reliance in the Oil for Food scam. But even the left party flattered to deceive. At a press conference Prakash Karat of the Left did mention the role of Reliance in the bribery scandal, but there were no coordinated efforts on the part of the Left to bring Reliance within the purview of the Inquiry Commission. There were also reports suggesting that Mukesh Ambani met with the Left leaders but what transpired between them is a matter of conjecture.
All the speeches of the house were directed against the Congress party and Natwar Singh but Reliance Petroleum was spared the attention. A careful transcript of the speeches made at the floor of the Parliament reveals this fact. The Finance Minister, PC Chidambaram carefully avoided any reference to Reliance Petroleum Limited and blew smoke rings. The performance of the seasoned lawyer Kapil Sibal was masterly in suppressing critical facts about the involvement of Reliance in the scam. The BJP also adroitly sidestepped the Reliance issue and harmlessly indulged in verbal pyrotechnics. There was a strange unity among political parties to protect Reliance Petroleum from legal proceedings.2
Tip of the iceberg
The Oil for Food scam was not an isolated instance of Reliance Petroleum Limited walking away from corruption unscathed. There are also other scandals involving the Reliance Group. One of which was the deal involving Panna-Mukta- oil fields - given to Reliance during the Congress government by Captain Satish Sharma who was the Minister of oil and Natural Gas and a close friend of Rajiv Gandhi. The deal was sweetened to benefit Reliance on the specious plea that ONGC’s cost of exploration was inefficient when compared to the exploration costs of the private sector. Further, the royalty payment was on the basis of fixed rate instead of ad valorem rates, which would be beneficial to the government. This is evident as oil is a non-renewable asset and subject to upward revision of prices. The loss to the national exchequer was to the tune of thirty billion US dollars if the price of the barrel is fixed at US$80 with reserves at around 120 MMT. If the additional gas reserves of 1.9 trillion cubic are calculated then there is another staggering loss of about another 10 billion dollars.
The Comptroller and Auditor General adversely commented on the decision, saying no in depth analysis was carried out by the Ministry to arrive at such conclusions. Satish Sharma was later subject to a CBI probe, which said that there was a prima facie case indicating assets disproportionate to known sources of income
For future deals such as KG basin the Royalty payments were changed from fixed rate to ad valorem rates of 5% to 10% of sale realisation. As a result of absurdly low rates of royalty charged the government lost heavy revenues to the tune of over one hundred billion dollars, which was handed on a platter to Reliance as windfall profits.
Other controversies have dogged Reliance such as jacking up capital costs from $1.5 billion (2002) to $8.4 billion in 2006 with respect to the Krishna- Godavari project. The amount represented a massive scam, as gold plating of costs would be recovered before sharing of any production with the government.
The Reliance Group has also shown ingenuity in alleged tax evasion of customs duty of 120 crores in its illegal import of machinery for its PTA plant. The matter has been pending in the courts for over twenty years and has not seen the light of the day.
As the author sums up, the secret of Reliance Group becoming the largest conglomerate in the country could be attributed to,
‘financial engineering, propping up of its own shares, issuing shares of new companies at premium to the public and then merging the companies and, of course, the oil bonanza handed over to it by the government.’3
A dangerous collusion
When the interests of Big business coincide with the personal interests of politicians and bureaucrats of the government, then it can be safely assumed that public good or national interest would be in an irreversible terminal decline. As Timothy P. Carney in his book The Big Rip-off: How Big Business and Big Government Steal Your Money says,
‘Today's largest corporations have mastered the art of working with government officials at every level to stifle market competition. They reap billions through a complex web of higher taxes, stricter regulations, and shameless government handouts.’
He adds ominously that when the players in big business and big government unite, the end result is one of consumer misfortune, where prices are artificially inflated, fewer substitutes are available for sale and there are huge barriers to market entry for small businesses entrepreneurs signifying the death of free competitive markets.4
Apart from creating a stifling monopoly, which destroys competition, the coffers of the state dry up when it hands out national resources for a song and forgoes opportunity to collect revenues. When the state is not able to fulfill its constitutional obligation on account of paucity of resources, it loses its legitimacy in the eyes of the people and becomes inherently unstable.
The important achievement of Arun Agrawal’s book, Reliance - The Real Natwar is to show that it is bad economic policy to substitute the invisible hand of the market with the greased palm of corruption. For this reason alone this book should be read and reread without the ideological blinkers in our mind.
1 For more details refer to Chapter 1 - Scam - pages 23-49-Reliance The Real Natwar- Arun Agrawal- Manas Publications- edition 2008.
2 Refer to chapters 8 and 9 at pages 127 –251 covering parliamentary debates.
3 For details on oil related scams of Reliance refer to chapter 7- the Reliance Saga on pages 89-126
4 Human Events.com- "New book reveals Big Business scams"-Ms Evans- 20/07/2006
The Nexus of Corruption: Reliance and Government
- » Published on September 09, 2008
- » Type: Opinion
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