The Hindu Business Line : Gas producers, consumers present case on pricing

While the gas consumer, Fertiliser Ministry, continued to pitch before the Committee of Secretaries (CoS) for an affordable delivered price from Krishna Godavari Basin, which would enable them to become globally competitive, gas producers such as ONGC and Reliance Industries Ltd wanted a price that would make exploration and production business more attractive.

The consumers and producers submitted their views before the Committee, which has been set up to look into the pricing of gas from Krishna Godavari Basin. At its earlier meeting, the Committee had heard the views of power sector.

According to sources, in its presentation ONGC informed the Committee that it was making an annual loss of Rs 700 crore on the gas sale at an administered price, while RIL maintained that it has followed a transparent process to discover the price of gas to be produced from its prolific KG-D6 block.

‘Not sustainable’

Sources told Business Line that the ONGC Chairman, Mr R.S. Sharma, told the Committee that the current price of Rs 3.2 per cubic metres that ONGC gets for gas produced from its own fields was not sustainable, and the hike proposed b y Tariff Commission to Rs 3.6 per cubic metres was only good enough to help ONGC break even. However, if the current price increase in the sector continues, breaking even at the proposed revised price would be tough, he is understood to have said.

For new discoveries, ONGC has sought a price that would be appropriate to its investments. Mr Sharma also told the panel that ONGC’s $2-3 billion investment in bringing to production small and marginal gas fields was on the premise that it would get market price. The company would prefer a price, which was in line with the price of Tapti gas fields of $4.75 per million British thermal unit (mBtu).

Explaining his company’s position, Mr Mukesh Ambani, Chairman of RIL, informed the Committee that a transparent mechanism has been followed to arrive at a price of $4.33 per mBtu (at Kakinada) for its KG gas. Mr Ambani informed the Committee that power generation at this price would be less than Rs 2.5 a unit and would help save Rs 6,400 crore in fertiliser subsidy annually.

RIL’s View

According to sources, RIL has told the Committee that based on transparent bids, the maximum price of gas at an exchange rate of one dollar to Rs 45 came to $4.33 per mBtu. RIL did not invite bids from major consumers such as ceramic industry and oil refineries as they could have bid $7 per mBtu to save on the $15 per mBtu price paid for industrial LPG and $11 per mBtu for fuel oil.

The company said if its gas replaced just the 14 million standard cubic metres per day (mmscmd) equivalent naphtha (currently priced at $16 per mBtu) and 3 mmscmd of imported LNG (costing $7.5 per mBtu) being used in the fertiliser units, an annual saving of Rs 6,400 crore in fertiliser subsidy would accrue.

Prior to the producers making their presentation before the Committee, the Fertiliser Ministry had informed the Committee that it was in favour of a long term contract and that the delivered price should not exceed $5 mBtu.

As per its calculation the landfall price of RIL gas stood at $4.79 per mBtu, making the delivered price for fertiliser units in the range of $5-7.5 per mBtu, depending upon the location. This was much higher than the current average price at which the fertiliser companies were getting gas. The current average price worked out to $3.97 per mBtu.

Mukesh Ambani meets Govt officials

Before the crucial Committee of Secretaries meeting to resolve the issue of gas pricing from Krishna Godavari Basin, the Chairman of RIL, Mr Mukesh Ambani, met senior Government officials to explain his company’s position on gas pricing from its KG-D6 block and how the price was arrived at.

Mr Ambani, who arrived in the city on Monday, met Senior Secretaries, including Cabinet, Expenditure and Fertiliser on Tuesday and explained how natural gas from Reliance’s KG-D6 block can help reduce the fertiliser-subsidy burden by replacing the costly naphtha and fuel oil burnt by the fertiliser makers. He is also understood to have said that at the proposed price ($4.33 per mBtu at Kakinada) Government revenues would more than compensate for rise in fertiliser subsidy in case gas was used in expansion of such units.

RIL’s proposed gas price is being opposed by power and fertiliser ministries as well as Anil Ambani group.

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