The Hindu Business Line : Gas pricing sets off debate on utilisation & bidding policies

Policy implementation
May lead to cartelisation among the buyers resulting in anti-competitive practices.
For RIL, it would mean inviting fresh bids, which would further delay the KG Basin project

Our Bureau

New Delhi, Sept. 4

The issue of gas pricing under the New Exploration Licensing Policy (NELP), which is being considered by an Empowered Group of Ministers (EGoM), seems to have kicked off a debate on a need to have gas utilisation, pricing and bidding policies in place to avoid disputes. The issue gathers significance as it would have direct impact on Reliance Industries Ltd’s (RIL) gas pricing from its eastern offshore field.

Even as a decision on the issue is yet to be taken, the stakeholders, including the Anil Ambani Group, have been vocal in expressing their concerns on RIL’s proposed pricing formula. They have been arguing that the Mumbai High Court order of June 20 prohibits RIL from selling gas up to 81.67 mmscmd, which it has committed to NTPC and Anil Ambani Group as well as for its own consumption. It leaves RIL with no gas to sell to third parties and, hence, cannot invite any fresh bids to decide on the pricing, they argue.

According to gas producing companies, if the Government decides to form policies on gas utilisation, pricing, and bidding, and implement them retrospectively then it could lead to cartelisation among the buyers (bidders). This would result in anti-competitive practices. Besides, for RIL it would mean inviting fresh bids, which would lead to a delay in commencing the production from the D6 block of Krishna-Godavari Basin by at least a year or two.

Committees’ proposals

The EGoM is considering the views of the two high-level committees – recommendations of Cabinet Secretary, and Economic Advisory Council of the Prime Minister on the issue. The RIL formula may need to be revised if the recommendations of the two committees are taken into account, experts say, adding that this may require RIL to invite fresh bids. While inviting bids RIL also needs to disclose volume of gas on offer.

Declaring the aggregate quantity of production in the bidding process would not have made any difference to the price quotes submitted by the customers as their quotes were based on the price they were willing to pay for the gas in competition with other customers, sources said.

Moreover, considering the huge demand supply deficit in gas, declaring volumes upfront would not have changed the demand-supply situation to have an impact on price, gas producers feel.

Under the Production Sharing Contract (PSC), the Government can approve the price formula for valuation of its share. Besides, the PSC gives the operators freedom to market the oil on international price parity basis and gas in the domestic market on arms length basis.

In terms of PSC, RIL has submitted the price formula for sale of gas from KG Basin for approval of the Government with a proposed wellhead price of $ 4.33 per million British thermal unit at Kakinada.

Gas production from the KG-D6 fields is scheduled to begin from July-September 2008, but the company fears there could be a two-year delay due to these factors.

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