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Of hype, misadventure and Gujarat's powerdom

By Rajiv Shah
It was a Sunday. On June 25, 2005, Gujarat's chief minister Narendra Modi called an urgent press conference to announce the "biggest ever gas find in India", valuing at around Rs 2 lakh crore. Quietly sitting at my residence, I had to rush to Sardar Patel Institute of Public Administration (SPIPA), Ahmedabad, which is Gujarat's counterpart of Indian Institute of Public Admnistration (IIPA), Delhi. It was raining rather heavily, and my daughter had to virtually sail through the flooded city to reach Satellite Road to drop me at SPIPA. Modi announced that premier state PSU Gujarat State Petroleum Corporation (GSPC) had "discovered" 20 trillion cubic feet (tcf) of gas, "more than the total gas find of India", at KG basin off Andhra coast.
All of Modi's ministers were called on the occasion to listen to him. I interacted with several of them at the high tea that followed. They unanimously called it "Modi's great feat". I remember, how de facto Cabinet No 2, Anandiben Patel, who is ideologically closest to Modi, looked at me rather curiously, and remarked, “Now at least you should write something positive about us.” The event was reported as a report, as it would require, though insiders kept saying that a “hype” had been created, that Modi‘s love to “only think big” (to quote him), and show contempt for small, is just showed up. Such was the hype that a senior bureaucrat, who had doggedly pursued the project, told me, “It could be 20 tcf, 40 tcf, even 60 tcf. You can quote me.” I did.
Indeed, ever since, Modi’s efforts to create hype hasn’t stopped. A Gujarat International Financial Tec-city (GIFT) city was planned with 160 high-rises, one of them 410 metres tall, despite the expert view by renowned ICT expert Sam Pitroda, that financial cities are not made like this, that they evolve, that they are no real estate business. More recently, Modi has wanted to install the world’s tallest statue -- in the memory of Sardar Patel, 182 metres high, amidst Narmada river. Latest in the series is to have highest number of solar plants in Gujarat, all with government deciding to offer huge subsidies. These hypes, as if, “filled in the gaps” created by biennial Vibrant Gujarat investors’ summits, with MoUs worth tens of lakhs of crores.
Yet, at least in one case, the hype has been grounded conclusively, and Modi has now no answer. Soon after his announcement on KG basin, unconfirmed reports began to trickle in Gandhinagar Sachivalaya quoting sources in DG hydrocarbons, the Central regulator, that the gas find “is quite low.” I thought, the DG was a UPA appointee, hence couldn’t be relied. I asked a top bureaucrat, who knew the reality, and he told me, “It’s not more than 2 tcf (just 10 per cent of what Modi had claimed). Of this, less than two-thirds is recoverable.” I did a story, saying the 20 tcf balloon had been pricked. Yet, two years later, in 2007, talking with newspersons at a sumptuous lunch, Modi insisted, “It is at least 20 tcf, it can be 26 tcf, even more…” He even arranged trips of his ministers to visit the KG basin rig, where drilling had taken place!
By now, 20 tcf has been relegated into history. Plans for GSPC to go commercial in 2007 have remained a pipedream. Nobody talks of it, neither GSPC, nor the state energy and petrochemicals department, nor the minister of state who holds the portfolio. Known to avoid things uncomfortable, Modi has no word on it. A high-level presentation made by a senior bureaucrat last year told Modi what was known to all by then -- that 20 tcf was “not true”, that “less than 2 tcf” was found, and that “we do not know how much of it is recoverable.” “Modi just expressed surprise, and the matter was closed,” an official reported. There is no dearth of babus who now say that Rs 8,000 crore public money has gone down the drain.
In fact, Modi’s officials tell me that it was the “biggest mistake ever” to have made the 20 tcf announcement. “Oil explorations nowhere in the world take place on borrowed funds from banks. It is too risky a business. These should always be held after raising funds from public,” one official, an expert on issues financial, told me, adding, “And this one at KG basin was more risky than any known one. It has taken place in deep sea, deeper underneath than anywhere, and at very high temperatures. All of it added to the cost. The risk of this kind wasn’t worth taking for a commercial proposition, when PSUs are constrained by strict official rules and regulations. Very little expertise is available, that too at a very high cost, for exploration of this kind.”
Officials are now waiting for the day when Modi’s KG misadventure would be repeated for several other projects which he has taken up to show up how he is different. The hype around some them have acquired a new dimension, especially ahead of the forthcoming Gujarat state assembly polls in December. And the most important one being cited is of solar power. Gujarat has “signed up” power purchase agreements (PPAs) for 960 MW, three-fourths of India, with tens of solar units, taking advantage of the offer of a very high subsidy. The offer is of Rs 15 per unit for the first 12 years and Rs 5 for another 13 years. “The plants already put up -- for 650 MW -- are producing 3 million units per day of power. It would mean the state would have to shell out at on an average Rs 1,600 per year for next 25 years”, a senior official has calculated.
“This happened at a time when the cost of solar power began coming down drastically”, the official, who is an insider, told me. “The capital cost of solar power per MW has come down by half. Many of the plants were established on purchase of power equipment at a sharply reduced cost, for Rs 8 crore per MW. Entrepreneurs would recover capital cost of power from government subsidy in less than seven years. As for the rest of 18 years, they would be happily enjoying on government subsidy, especially when the actual cost of producing power is just 15 paise per unit.” He insisted, “What a contrast! Reverse bidding in Delhi has brought down price of solar power to Rs 7.75 per unit. And we are offering Rs 15.”
Meanwhile, despite advise to the contrary from senior engineers, Modi’s men have begun yet another misadventure. They have installed 1 MW of solar power panels, 750 metres long, atop a Narmada branch canal, at the unprecedented cost of Rs 17.50 crore, nearly double that of what the entrepreneurs are investing. Even Modi admitted, no entrepreneur came forward to invest, hence the government decided to do it on its own. Modi’s aides now say that “2,000 MW of solar power can be installed atop the Narmada canal network,” even as engineers say the project would mean the canal network would be susceptible to rupture. “The lining cannot bear the heavy load. And, how do you clean up the canal of the silt in that gathers naturally in the canal? By carrying them several kilometres in order to bring them out?”



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