Reliance energy proposal for gas rejected: Govt

New Delhi, Aug 1: The government today said it has not agreed to the proposal of Reliance Industries Limited (RIL) to approve the gas price formula for sale of gas from the Krishna-Godavari block to Reliance Natural Resources Ltd (RNRL).

In a written reply to the Rajya Sabha , Minister of State for Petroleum and Natural Gas Dinshaw Patel said the decision was taken as it was not in accordance with the provisions of Production Sharing Contract (PSC) signed between the government and the consortium of RIL, Niko Resources Ltd.

He said under the PSC, gas for the purpose of the contract should be valued on the basis of competitive arms-length sales in the region for similar sales under similar conditions.

Last Wednesday, the government in a official statement rejected Mukesh Ambani-owned Reliance Industries Limited's (RIL's) gas price formula for the sale of gas to Reliance Natural Resources Limited (RNRL) owned by his brother Anil for its D-6 block stating that the price has not been derived on the basis of competitive ''arms length sales.'' The Petroleum Minister said the transaction between RIL and RNRL is part of their de-merger agreement and therefore does not meet the Production Sharing Contract (PSC) of ''Arms Length Sales''.

''The prevailing domestic gas price from fields operated by Joint Venture/private companies commands a significantly higher price than the proposal of RIL,'' the statement said.

The Government is of the view that, ideally, any price discovery should be the result of an open and transparent competitive bidding process that allows fair and equal opportunity to all gas consumers to participate in the price discovery.

The same procedure has already been followed by companies including RIL in the Panna-Mukta and Tapti PSCs. However, to take care of situations where this may not be possible, the Government has constituted a Committee to prepare a frame-work of transparent guidelines for such valuation.

The proposal of Reliance Industries Limited (RIL) regarding the gas price formula for sale of gas to Reliance Natural Resources Limited (RNRL) for the block KG-DWN-98/3 (also known as D-6 block) had been submitted to the Government as per the requirement of the PSC.

The Government has now examined the proposal in the light of the provisions, in particular Article 21.6 of the PSC, which provides the principles for valuation of natural gas for the purposes of the PSC. The Government, as a party to the contract, is concerned with the formula or basis on which the gas under the PSC is to be valued for the purposes of computing cost recovery, linked to the valuation of cost petroleum, the profit share of the parties including the Government and the royalty.

The Petroleum Ministry has not so far received so far any proposal for approval of the formula or basis for valuation of gas for sale to NTPC from the same fields. Hence the question of a Government decision on this does not arise at this stage.

RNRL has also written to the petroleum minister, Murli Deora that the gas price of 2.34 dollar per mmbtu is the same as the price quoted by RIL to NTPC for supply of 12 mmscmd gas under an international competitive bidding process in 2004 and 2005.

''The NTPC sale price and therefore, sale price to RNRL, is based on competitive arms length price discovery. It was not necessary to duplicate the entire process of price,'' it said in its letter.

UNI