The Hindu Business Line : Meet on gas pricing likely today

New Delhi, Aug 26 The Empowered Group of Ministers (EGoM) headed by the Minister for External Affairs, Mr Pranab Mukherjee, looking into issues pertaining to the pricing of domestically produced natural gas is expected to meet on Monday. The issue of gas pricing came to the forefront after Reliance Industries Ltd (RIL) sought the Government’s nod for the price formula for its Krishna Godavari (KG) Basin gas.

According to the production sharing contract, RIL requires Government nod for its pricing formula. The Government has received representations from stakeholders including the Andhra Pradesh Government and the Anil Ambani Group on the issue of gas pricing and availability from KG D6 Block of RIL.

RIL’s price formula has been considered by the Cabinet Secretary, as also the Economic Advisory Council (EAC) of the Prime Minister. The EGoM will consider these views in addition to the issues raised by other stakeholders such as the power and fertiliser sectors. RIL’s discovered well head-price turned out to be $4.33 per mBtu. The delivered price would be in the range of $4.76-5.98 per mBtu without taxes.

On whether the bidding process adopted by RIL for arriving at the price was transparent or not, the EAC has suggested that as there appear to be certain doubts on the bidding process it may be appropriate to call for fresh bids.

Gas allocation

According to industry sources, under the New Exploration Licensing Policy (NELP) the issue of discovery, commerciality, development and production on one hand, and marketing and sales of natural gas on the other are two distinct issues. The production sharing contract recognises market-based arms length pricing as the only criteria for determining allocation of gas to ensure efficient utilisation and conservation of gas resources.

Besides, in case the Government does declare a policy on allocation for certain sectors or companies then it would lead to cartelisation by parties and not constitute a process of arms length price discovery, industry sources said.

The Left Parties have also voiced their concerns on the sale price of gas from RIL’s D6 block of KG Basin. In their letter to the Prime Minister, Dr Manmohan Singh, they have raised question on why a committee to formulate transparent guidelines for approving the gas pricing formula was only represented by the Ministry of Petroleum and Natural Gas, and also why RIL has been allowed to increase the capital cost of the project time and again.

They also opined that since the production of gas from the D6 block is to start only in August 2008, there was no hurry in fixing the price. “Is there any guarantee that the private contractor engaged in the activity will not ask for further increase in price due to market conditions by the time production commences,” the Left parties said.

Stating that this was a serious matter which needed a patient hearing, they said, a detailed study should be carried out based on various issues related with gas pricing before arriving at a final conclusion.

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