The Hindu Business Line : RIL to make presentation on K-G gas price formula

Block detail
Reliance slated to make presentation to Ministry today.
10 cos from power, fertiliser sectors have put in bids.
RIL proposes to produce 80 mmscmd of gas from KG block.

New Delhi June 11 With gas yet to start flowing from Reliance Industries Ltd's (RIL) Krishna Godavari Block, the company is already feeling the heat of pricing and potential buyers.

The buck, however, stops at the door of the Ministry of Petroleum and Natural Gas on whether the formula being proposed by RIL is acceptable or not.

The company is slated to make a presentation before the Ministry on Tuesday. Only after the Ministry approves the formula would a clear picture on RIL's KG gas price emerge, sources said.

In order to reach a market-determined price for the gas, which is to start flowing from June 2008, RIL had called for quotations from the existing customers — power and fertiliser companies.

This was in keeping with the Petroleum Ministry's thinking that the prices should be arrived at on an arm's length basis and be market determined because once a price has been discovered between the suppliers and customers through a transparent competitive bidding process, there would be no need for the Government to interfere.

According to sources, the formula being proposed by RIL has variables like crude price and exchange rate, with a floor of $25 per barrel and a cap of $65 a barrel for crude price.

Companies bid

In response to RIL's invitation for quotations, 10 companies from the power and fertiliser sectors had put in bids in the range of about $4.30 to $4.70 per million British thermal unit (mBtu) at Kakinada.

This excludes marketing and transportation charges. According to industry sources, this range, when translated into delivered price, could be between $5.2-5.7 per mBtu, depending on the location as well as mode of transportation.

If the gas is transported through RIL's network the price would be different, they explained.

Declining to divulge any more details, sources said as per the bids submitted, the estimated volume demand for 2008-09 is a little over 25 mmscmd, which is expected to go up to 35 mmscmd subsequently.

Report base

RIL proposes to produce 80 mmscmd of gas from its KG block. Recently, the Petroleum Ministry has accepted the report of the Committee constituted to formulate transparent guidelines for approving natural gas price formula/basis for giving Government nod under the production-sharing contract.

The Committee was constituted last year. It has recommended that in all situations, where a price discovery through competitive bidding is possible, there should be no need to apply any other principle for valuation of gas.

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