Throwing a new hurdle at Reliance Industries Ltd.’s natural gas plans, the Andhra Pradesh government has strongly opposed the proposal of the Union ministry of petroleum and natural gas’s to let “transparent competitive bidding” determine the price of domestically produced natural gas.
“There can be no ‘competitive bidding process’ in a situation where the product is in huge shortage and the supplier is a monopoly. It will merely mean auction of a scarce product, which maximizes the price of gas to the advantage of the seller, and to the disadvantage of the consumer, thus facilitating profiteering,” wrote AP chief minister Y.S. Rajasekhara Reddy in a 16 June letter to Prime Minister Manmohan Singh. He reiterated the state’s demand for setting up a market regulator to determine the upstream price of gas.
Reddy pointed out to Singh that Reliance, which has one of the largest gas finds in the Krishna-Godavari basin region, is understood to have asked select companies in the power and fertilizer sectors for submitting price quotes for its gas from KG basin.
“It (Reliance) has fixed its gas price formula based on the brent crude oil in US$ per barrel, whereby the minimum quoted price has to be around $4.6 per mBtu,” said Reddy. Arguing that there is no justification to link the price of domestically produced gas to any international fuel oil price, Reddy said other countries that produce gas do not link the price of gas for domestic use to international fuel prices.
Further, the AP chief minister said, bids have been obtained from power and fertilizer companies, both of which do not pay for the gas. While it is the ministry of fertilizers that bears the fuel cost of fertilizer companies, for power companies it is the consumers or the state government who pay through tariffs.
“Therefore, there can be no ‘discovery of market price’ by calling for bids from these companies which do not bear the cost of gas,” said Reddy.
Pointing to legal pitfalls of the ministry allowing Reliance and others to use such a bidding process to arrive at the prices, the AP government has pointed out that “discovery of market price” of coal through an e-auction was frowned upon by the Supreme Court.