Gas should be sold at market rates: EAC

New Delhi, Aug 16: Attempting to resolve the ongoing gas price war, the Prime Minister's Economic Advisory Council (EAC) has said that the fuel should be sold at market rates according to the provisions of the production sharing contract.

The EAC's move to uphold the market rate based tariff is in consonance with what Mukesh Ambani-led RIL had asked for -- 4.33 dollars per million British thermal units (mBtu).

RIL was the first company to strike gas at the Krishna-Godavari basin in the first round of NELP announced by the government in 2000.

Th EAC said the RIL price formula could be fine tuned and that the company can broadbase the auction and invite bids from more players.

Headed by Dr C Rangarajan, the EAC has said the price of 4.33 dollars per million British thermal units (mBtu) discovered by RIL is comparable with that of gas being sold in the recent past from the Ravva fields.

Producers from the Ravva gas fields sell their gas at 4.3 dollars per unit. The centre, as per its oil fields privatisation policy, invited in 1992 bids for a joint venture state-owned oil company, ONGC, for developing the Ravva oil and gas field in the east coast.

According to EAC, RIL should offer a minimum 10-year contract, with a provision of periodically reviewing price according to changes in the international Brent crude price to which the gas price is pegged. RIL had initially offered the gas for a three-year contract.

Last month a Committee of Secretaries (CoS) headed by Cabinet Secretary K M Chandrasekhar had submitted its report on pricing of natural gas from Reliance Industries' Krishna Godavari fields to the Prime Minister's Office (PMO).

Ministries of Petroleum and Law had separately pointed out that the commitment under Parliament-enacted New Exploration Licensing Policy (NELP), which promises an investor freedom to sell oil and gas at market determined prices, needs to be honoured to show stability of policy and contracts to international investors.

Mukesh Ambani's RIL had won the KG-D6 block in first round of NELP in 2000. The price of 4.33 dollars per million British thermal unit (mBtu) proposed by RIL for the gas it plans to produce from KG-D6 from July 2008 had met stiff opposition from power and fertilizer sectors in general, and Mukesh's younger brother Anil in particular.

The EAC report clearly states that all consumers must buy gas at market prices.

Dr Rangarajan who heads a five-member inter-ministerial committee is tasked with formulating a long-term policy on pricing and taxation of petroleum products.

The Committee has been asked to suggest a comprehensive mechanism for pricing of sensitive petroleum products after taking into consideration the interest of all the stakeholders, including the Government, oil companies and the public.

''The committee should help respond to changing global oil scenario so that the interest of all the stakeholders is taken care off. At present it is not a very happy situation where there are frequent changes in the prices and we are unable to respond quickly leading to difficulties for all stakeholders,'' former Petroleum Secretary Sushil Chand Tripathi had earlier said.

The proposed mechanism could cut down on the need to seek clearance from the Government every time there is drastic movement in the price of petroleum products.

''If the situation changes drastically and the mechanism does not work, we will have to approach the Government, otherwise there may not be the need to go back to the Government,'' Mr Tripathi said.

UNI