New Delhi: The Prime Minister’s Economic Advisory Council has approved Reliance Industries’ $4.33 per mBtu price of gas from KG-D6 fields, saying it was in line with industry practices and priority allocation to fertilizer and power sectors will have to be at market prices.
EAC chairman C Rangarajan, who was asked by the Prime Minister to look into the price proposed by RIL, in his report dated 8 August said the formula was broadly in line with industry practices that use a mix of a base price and pass through of traded prices of competing fuels.
Sources said he, however, asked for doing away with dollar linkage so as to remove the anomalies arising out of linkage to the currency exchange rate.
RIL’s delivered price of $5.5-6.2 per million British thermal unit translated into an power generation cost of Rs2.2-2.5 per unit. This is slightly higher than power generated through domestic coal (Rs2-2.34) but lower than power produced from imported coal (Rs2.75-2.9).
The price would also result in large savings in subsidy when fertilizer plants using more expensive naphtha, fuel oil and LNG switch over to RIL fuel, the report said.
EAC said as doubts had been raised on RIL’s invitation of only power and fertilizer units along its Kakinada-Ahmedabad pipeline having a minimum consumption of one million standard cubic meters to participate in the bidding process, open bids may be invited from all consumers.
Sources said if refineries, steel plants and glass units, who burn expensive naphtha and fuel oil, are invited in the bidding process, the gas price would increase by at least $1 per mBtu.
Sources said EAC has prescribed a transparent bidding process where volume of gas offered would be indicated in advance and consumers offered a minimum of 10-year contract.
It also stated if gas utilisation policies — regarding both conservation/efficient use of gas fields, and sectoral allocations — are formulated, they should not be in conflict with market price discovery envisaged under New Exploration Licensing Policy and Production Sharing Contracts for fields like KG-D6 signed under NELP since 2000.
Even if gas is to be allocated to priority sectors, it should be at market prices, the Council opined.
It asked Petroleum Ministry to consider either appointing or extending the ambit of the existing downstream gas regulator to scrutinize and approve gas pricing. Besides, the ministry was also advised to take appropriate action to put in place suitable mechanisms for proper scrutiny of capital expenditure in the fields.
The report of the EAC along with that of a report by Cabinet Secretary K M Chandrasekhar that upheld RIL’s right to fix price of gas and said the sovereign commitment given in NELP cannot be altered, would be considered by an Empowered Group of Ministers headed by External Affairs Minister Pranab Mukherjee.