KG Basin may weather price twister

NEW DELHI: Reliance Industries (RIL) may not have to go in for a rebid even if the empowered group of ministers (EGoM) finally decides to tweak the formula with minor modifications.

According to officials close to the development, a rebid may not be necessary because of the proposed changes in the formula as there are no serious objections to the bidding process. Moreover, the amended formula would only reduce the price which is unlikely to face objections from bidders as it would bring down costs for them.

“As per the production-sharing contract (PSC) under the New Exploration Licensing Policy (Nelp) regime, the government’s role is confined to approving the formula or the basis of pricing. RIL’s basis of price discovery has not been questioned, considering the nature of the commodity. The bidders would not have an objection if prices goes marginally lower due to the modification in the formula,” an official in know said.

Experts involved in the process are convinced that the process of price discovery is as per the PSC. The PSC asks for price discovery through a competitive bidding process on arm’s length principle.

It is observed that for a commodity like natural gas supply, limited bid is an internationally-accepted practice if the bidders are not associate companies. In the case of RIL, all the 10 bidders are unrelated corporate entities and the bids were called at an arm’s length principle.

It is also felt that rebidding may jack up the discovered price and the process — that may take two months or more — would delay the production schedule. EGoM members are unanimous that a quick solution to the problem is needed as wastage of time would not only have an adverse impact on RIL’s plans but also against the national interest as country needs fuel to maintain GDP growth rate.

In the first EGoM meeting, held on August 27, the chairman, external affairs minister Pranab Mukherjee, had directed the group for adoption of a focused approach on the issue and stated that “EGoM should strive for a quick decision keeping in mind the limited weather-window while working in the Bay of Bengal”.