The Hindu Business Line : Decision on RIL’s KG gas pricing formula soon

New Delhi, Aug. 1 The ball seems to be in in the Petroleum Ministry’s court as far as Reliance Industries Ltd’s (RIL) Krishna-Godavari gas pricing formula is concerned. Indications are that a decision on the issue could be expected within a fortnight.

Sources said “it is an important issue. Views of all the stakeholders are being considered.”

A decision on RIL’s gas pricing formula gathers significance as it would set the benchmark for future gas prices from the region.

The issue was deliberated upon by a Committee of Secretaries, which heard all the stakeholders including the Fertiliser and Power Ministries. Subsequently, the suggestion of thepanel was forwarded to the Prime Minister’s Office. As per reports, the PMO had also asked the PM’s Economic Advisory Council to look into the formula proposed by RIL.

The panel is understood to have suggested an alternative. The Petroleum Ministry has been asked to look at certain aspects before reaching a decision. The panel is said to have agreed with the Petroleum Ministry’s contention that contractual obligations need to be honoured.

However, it has also felt that the price of gas should be such that it is affordable for power and fertiliser sectors.

The pricing formula adopted by RIL is subject to an approval by the Government under the terms of Production Sharing Contract (PSC).

RIL, which is set to produce 80 million standard cubic metre of gas per day (mmscmd) during peak production from its KG block D6, had invited bids from power and fertiliser companies based on a pre-set formula. The formula included a base price of $2.5 per million British thermal unit (mBtu), an indexation to crude prices and an exchange rate.

RIL’s gas will cost $4.33 per mBtu at Kakinada. This price excludes the marketing margin, transportation tariff and four per cent Central Sales Tax. According to sources RIL’s formula links the price to Brent crude price, with a floor price of $25 per barrel and a cap of $65 per barrel. The price will be calculated based on a year’s average of Brent crude oil price.

According to RIL’s proposed formula the delivered price would be in the range of $4.76-$5.98 per mBtu, depending on the distance.

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