The Hindu Business Line : Govt rejects RIL price for gas to RNRL

In a new twist to the ongoing war between the two Ambani brothers on the issue of gas price, the Government on Wednesday said that it did not agree with the Mukesh Ambani led Reliance Industries Ltd (RIL's) proposed valuation formula for gas sales to Reliance Natural Resources Ltd (RNRL) belonging to Anil Ambani Group.

The Petroleum Ministry in a statement issued here said that it did not agree to the formula on the ground that it has not been derived on the basis of competitive arms length sale pricing for similar sales under similar conditions in the region from where the gas is procured. "It may be noted that the transaction between RIL and RNRL is part of their de-merger agreement and therefore does not meet the production sharing contract (PSC) criteria 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 Ministry said.

This move may affect the proposed 7,480 MW Dadri power project of Anil Ambani Group. The proposal of RIL regarding the gas price formula for sale of gas to RNRL for D-6 block in KG Basin had been submitted to the Government as per the requirement under the production sharing contract. RIL is selling gas from its Panna/Mukta and Tapti fields at $4.75 per million British thermal unit (mBtu). The proposed price of $2.34 per mBtu by RIL for sale to RNRL was significantly lower than the prevailing market price, the Petroleum Ministry said.

"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 contract. 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 statement said.

The Petroleum Ministry held 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 product sharing contracts, it said. The Ministry has not 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, the statement clarified.

Reacting to Government decision, RNRL spokesperson said that the Government approval is limited to price to be adopted for determining Government share of profit petroleum. Besides, this is a matter between the Government and RIL. The spokesperson also said that

RIL officials said, "We are examining the order."