PM's panel backs RIL's gas pricing
In what could be a major input to solve the vexed issue of gas pricing, the Economic Advisory Council has endorsed the gas price discovered by Reliance Industries.
By MK Venu & Soma Banerjee, TNN |
NEW DELHI: In what could be a major input to solve the vexed issue of gas pricing, the Prime Minister’s Economic Advisory Council (EAC) has endorsed the gas price discovered by Reliance Industries (RIL) by inviting bids from large consumers in the domestic market.
RIL had invited bids from select power and fertiliser companies along the pipeline route for its gas from the Krishna Godavari region. Broadly endorsing the formula under which the bids were sought, the EAC also made it clear that gas should be sold at market rates according to the provisions of the production sharing contract.
In a report, the chairman of PM’s advisory council C Rangarajan said the price of $4.33 million British thermal units (mmbtu) discovered by RIL compares well with the price at which gas has been sold in the recent past from the Ravva fields. Producers from the Ravva gas fields sell their gas at $4.3 per unit.
To promote greater transparency, Mr Rangarajan has recommended that RIL can broadbase the auction and invite bids from more players. Also, the report said RIL should offer the entire volume of gas — 80 million standard cubic metres per day (mmscmd) — to discover a more accurate price. RIL had earlier received bids from 10 companies for 34.4 mmscmd. This was less than half the total volume RIL plans to produce at the peak.
RIL had invited bids from select power and fertiliser companies along the pipeline route for its gas from the Krishna Godavari region. Broadly endorsing the formula under which the bids were sought, the EAC also made it clear that gas should be sold at market rates according to the provisions of the production sharing contract.
In a report, the chairman of PM’s advisory council C Rangarajan said the price of $4.33 million British thermal units (mmbtu) discovered by RIL compares well with the price at which gas has been sold in the recent past from the Ravva fields. Producers from the Ravva gas fields sell their gas at $4.3 per unit.
To promote greater transparency, Mr Rangarajan has recommended that RIL can broadbase the auction and invite bids from more players. Also, the report said RIL should offer the entire volume of gas — 80 million standard cubic metres per day (mmscmd) — to discover a more accurate price. RIL had earlier received bids from 10 companies for 34.4 mmscmd. This was less than half the total volume RIL plans to produce at the peak.
The EAC report said that the RIL formula can be finetuned to make price discovery more foolproof. The cabinet secretary’s report had earlier said that the RIL formula had “infirmities.”
With a view to providing long-term gas contracts and prices, Mr Rangarajan said 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 linked. RIL had initially offered the gas for a three-year contract.
The petroleum ministry in its discussions with RIL had, however, asked it to extend the contract period to five years.
Gas users must buy at market rates
The EAC report clearly states that all consumers must buy gas at market prices. If subsidised gas is to be given to fertiliser or power sectors, the subsidy element must be met upfront from the profit earned by the government, which shares a part of the profit earned by the company from the sale of gas. This profit must be used to reimburse subsidy to the government, which foots the fertiliser subsidy bill in the budget.
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The Prime Minister had asked the EAC to study the issue and prepare a report following the recent controversy over RIL’s gas pricing. RIL’s KG gas find is the first in a series of gas discoveries under the new Exploration Licensing Policy (NELP) and the gas from the basin is expected to be in the market by June 2008. Mr Rangarajan’s recommendations, which are far more conclusive than the Cabinet Secretary’s report has attempted to provide some solutions to the issues raised in the debate over gas pricing.
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