New Delhi: Reliance Industries has warned of cartelization if it is again asked to seek price bids from consumers for the natural gas it plans to produce from its eastern offshore KG-D6 fields.
“The bidding process followed by RIL (that discovered the price of $4.33 per million British thermal unit for KG-D6 gas) was a transparent and legally complete process in line with the provisions of the Production Sharing Contract,” RIL president & CEO-Petroleum, P M S Prasad, wrote to Petroleum Secretary M S Srinivasan.
The Prime Minister’s Economic Advisory Council had in view of doubts about transparency of the bidding process suggested rebidding although it acknowledged the rationality and competitiveness of RIL’s pricing formula for KG-D6 gas. An Empowered Group of Ministers, set up to look into the matter, will also meet tomorrow to discuss the issue.
Prasad said any fresh bidding process for price discovery would distort market and lead to cartelization “as bidding will be now done under a pre-conceived allocation mechanism under a so-called utilization policy”.
“In case the government does declare a policy on allocation for certain sectors or companies it would lead to cartelization by parties and not constitute a process of arms length price discovery in as much as the price that the favoured allottees of gas would be willing to pay would never be reflective of true market price of gas,” he said.
RIL said the price discovered and submitted by it reflected the price for sale of gas for transactions between willing and unrelated parties.
Prasad said RIL followed the Petroleum Ministry’s guideline for arms-length transaction by discovering price “through competitive bidding between non-affiliates”.
RIL, he said, had invited bids from all customers meeting specified criteria, excepting NTPC with which the company had a legal dispute on a 2004 gas sale tender.
Both price and quantity were made biddable items and customers were required to quote their year-wise gas requirements along with price based on a specified formula.
“Subsequent to the discovery process, all bidders indicated their willingness to enter into Gas Sales and Purchase Agreement terms sheets with RIL at the market discovered price. Legally binding GSPA Term Sheets have already been signed with eight of the ten bidders,” he said.
Prasad said the intent and purpose of the government’s gas marketing policy so far has been that the government needed to do away with the distortions that had crept in through the system of favouring certain chosen cutomers over others and instead let the market fairly determine who would get access to natural gas resources.
“The demand now that Petroleum Ministry formulate a policy on utilisation is not to fill a so-called existing policy gap but to reverse a well deliberated and formulated policy that has had the sanction of various Cabinets of several different governments in the past and has also been laid before Parliament,” he said.
“Our contention is that no such policy can now be formulated for existing PSCs without jeopardizing the rights of parties to the contract.”