New Delhi: Finance Minister P Chidambaram has favoured acceptance of the pricing formula proposed by Reliance Industries for natural gas to be produced from its eastern offshore KG-D6 block from July 2008.
Chidambaram earlier this week told the Empowered Group of Ministers (EGoM), constituted to go into the issue, that Prime Minister’s Economic Advisory Council after examining the price formula proposed by RIL suggested its acceptance as it was in line with international practice and the EGoM may, therefore, consider accepting it, sources close to the development said.
Mukesh Ambani’s RIL has proposed to price natural gas from KG-D6 at $4.33 per million British thermal unit, a rate that power and fertilizer units feel is “too high”.
Chidambaram, sources said, wanted RIL to supply natural gas to sectors which EGoM prioritised at the approved price.
Cabinet Secretary K.M. Chandrasekhar, however, wanted gas utilization and pricing policies to be framed before approving a price for RIL gas.
Petroleum Ministry disagreed with Cabinet Secretary’s conclusion. It said the reference to gas utilization policy in the Production Sharing Contracts signed for areas auctioned under New Exploration Licensing Policy, was only for reservoir management and extent of gas to be used in India or abroad. Unlike crude oil discoveries, export of gas is permissible under the Parliament-approved NELP.
Suggesting taking opinion of Attorney General on the matter, the ministry said there was already an informal policy for allotment of gas to sectors like power and fertilizer and even RIL’s proposal was for selling the entire gas to these.
Sources said when Fertilizer Minister Ramvilas Paswan pointed to additional gas needed to revive the closed fertilizer plants, petroleum ministry stated that the entire demand of the sector had been factored in the future gas supplies and it would be ensured that this demand was met.
Power Ministry mentioned that as the bid submitted by RIL against the NTPC tender predates the present pricing formula, the supplier commit to honouring it.
Chidambaram said the EGoM could address the issue.
Sources said oil ministry said that the price proposed by RIL would bring down fertilizer subsidy when plants using costlier liquid fuels like naphtha and fuel oil shift to gas, and the cost of generating power from KG-D6 gas would be comparable with electricity to be generated by imported coal.
It said the government was under contractual obligation to allow pricing of natural gas on arms length principle and lower price would depress total revenues and delay triggering of higher profit share for the government.
Any state intervention in the price discovery, it said, may be perceived as investor unfriendly, source said.
As per Production Sharing Contracts signed with firms like Reliance for areas auctioned under NELP, government has the right to only approve the gas formula/basis and cannot fix a particular price, the oil ministry has said.
According to the ministry, the government approving a price higher than the $3.18 per mBtu price RIL had bid in a NTPC tender in 2004, would not impede on the state-run firm’s legal battle with the Mukesh Ambani-led company to enforce the bid. The government can approve different prices for gas under NELP, depending upon the timing as to when the proposal is approved.