Govt fixes RIL gas price at 4.20$ per mBtu

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New Delhi, Sep 12: The Empowered Group of Ministers (EGoM) which met here today fixed the price of Reliance Industries Ltd (RIL) gas from its eastern offshore field at 4.20 dollar per million British thermal unit (mBtu) at delivery point which translates into Rs 172.20 per mBtu.

The approved price is 8.32 per cent lower than the price proposed by the RIL at 4.33 dollar mBtu. The price formula will be valid for five years from the date of commencement of the first commercial production and supply.

''The decision of the EGoM will lead to a gas price of 4.20 dollar per mBtu at delivery point which trasnlate into a price of Rs 172.20 per mBtu at the prevailing Indian rupee-dollar exchange rate. The approved price is 8.32 per cent lower than the price proposed by the contractorss,'' an official statement said here.

The decision taken in today's EGoM meeting will be without prejudice to the NTPC vs RIL and RNRL vs RIL court cases which are at present under subjudice, it added.

The EGoM also decided that the cap for the price of crude in the variable portion of the formula would be frozen at 60 dollars per barrel instead of 65 dollars per barrel as proposed by RIL-NRL, which would in turn translate into lower consumer price by reduction in the ceiling of the crude price. ''For all National Exploration Licensing Policy-I (NELP-I) to NELP-VI contracts, for natural gas price calculation, the constant will be pegged at 2.50 dollars per mBtu,'' the statement added.

The price discovery process on arms-length basis will be adopted in the future NELP contracts only after the approval of price formula by the government. The price discovered through this process would be applicable to all the sectors uniformly, it said.

The decision taken by the group of ministers headed by External Affairs Minister Pranab Mukherjee came after it met for the third and final time. The EGoM observed that since 'C' was the only biddable component in the submitted formula, assigning a value of '0' to this component would also address the transparency aspect of the bidding process, it added.

It may be recalled that RIL had proposed the vale of 'C' at Rs 4 per mBtu whereas the fertiliser unit had bid a low of Rs 1 per mBtu for 'C'.

The production sharing contract between the government and RIL and Niko Resources Ltd (NRL) with respect to contract area identified as block KG-DWN-98/3 was signed on April 12, 2000.

The application for the approval for the gas price formula was subimtted by RIL on May 18 this year while gas production from this block is likely to commence from July next year.

The initial estimated production is 40 mmscmd with projected plateau rate of production at 80 mmscmd, which will almost double the domestic gas production in the country.

Fertiliser Minister Ram Vilas Paswan wanted guaranteed gas supplies to fertiliser and steel plants, while Power Minister Sushilkumar Shinde is believed to have stated that RIL should honour court verdict in case supply of gas to NTPC, sources said.

The decision of the EGoM taken today will dispose the application submitted by RIL-NRL regarding approval of their gas price formula.

The EGoM headed by Pranab Mukerjee comprised Power Minister Sushilkumar Shinde, Chemicals and Fertiliser Minisster Ram Vilas Paswan, Finance Minister P Chidambaram, Law Minisster H R Bharadwaj, Petroleum Minister Murli Deora, Minister of Corporate Affairs Prem Chand Gupta and Planning Commission Deputy Chairman Montek Singh Ahluwalia.

The issue of gas pricing under the New Exploration Licensing Policy (NELP) had kicked off a debate on the need to have gas utilisation, pricing and bidding policies in place to avoid disputes. The issue gathered significance as it would have direct impact on Reliance Industries Ltd's (RIL) gas pricing from its eastern offshore field.

The stakeholders, including the Anil Dhirubhai Ambani Group (ADAG), had expressed their concerns on RIL's proposed pricing formula.

The Mumbai High Court order of June 20 this year had prohibited RIL from selling gas up to 81.67 mmscmd, which it had committed to NTPC and the ADAG as well as for its own consumption. It had left RIL with no gas to sell to third parties and, hence, cannot invite any fresh bids to decide on the pricing.

RIL had bid 2.34 dollars per mBtu price in an NTPC tender in 2004, but the contract could not be implemented due to differences over contractual provisions.


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