The Hindu Business Line : Ministerial group formed on Reliance KG gas price

New Delhi, Aug. 6 An Empowered Group of Ministers (EGoM) headed by the External Affairs Minister, Mr Pranab Mukherjee, would go into the issue of pricing of natural gas to be produced by Reliance Industries Ltd (RIL) from its Krishna Godavari Basin block.

Official sources told Business Line that the EGoM was expected to give its decision on the issue within a month. The EGoM was constituted by the Prime Minister, Dr Manmohan Singh, today. The decision was conveyed to the Petroleum Mi nister, Mr Murli Deora, when the Minister met the Prime Minister this morning on the issue, the sources said.

The Petroleum Minister, when contacted, said, “The sanctity of the contracts signed under New Exploration Licensing Policy (NELP) would not be compromised.”

Despite the Petroleum Ministry being the competent authority to decide on the issue, the matter was referred to a Committee of Secretaries, as it would set the benchmark for future gas prices in the region. The CoS, headed by the Cabinet Secretary, Mr K.M. Chandrasekhar, has already submitted its report.

RIL had approached the Petroleum Ministry with a pricing formula for the gas to be produced from its KG-D6 block. As per the formula, the landfall price of the gas at Kakinada stood at $ 4.33 per million British thermal units. This excluded the tax component, transportation tariff and marketing margins. The proposed price was opposed by fertilisers and power sectors, the Anil Ambani group, and the Andhra Pradesh Government.

While RIL has said maintained that it has followed a transparent process of inviting bids from all consumers with more than one million standard cubic meters per day of gas consumption on its Kakinada-Ahmedabad pipeline, the Anil Ambani Group has described the pricing as arbitrary, non-transparent and lacking competitive bidding process.

As per reports RIL’s lead vendors and bankers have also indicated that their apprehensions if any delay in the project takes place. A leading European lender and several equipment suppliers have over the past few weeks raised serious queries about the cash flow Reliance has projected from sale of gas from KG-D6 fields beginning July 2008, in absence of the Government approval for the gas price.