The Hindu Business Line : PM’s council suggests fresh bids for Reliance gas

New Delhi, Aug. 17 Reliance Industries Ltd (RIL) may have to call for fresh bids for its Krishna Godavari Basin gas, if the recommendations of the Prime Minister’s Economic Advisory Council (EAC) are accepted. The EAC has said that since doubts have been raised about the transparency of RIL’s bidding process, especially relating to placing restrictions on who was invited to bid, and volume of total gas on offer, it would be appropriate to go in for fresh bids to discover the price. It has also said that the volume of gas offered may be indicated in advance.

The EAC was examining the matter on a reference made by the Prime Minister’s Office (PMO). The suggestions of the EAC along with those made by the Cabinet Secretary are likely to be considered by an Empowered Group of Ministers (EGoM) on gas pricing. The EGoM is likely to meet on September 3. The EAC has also said that the gas supply may be assured for a minimum of 10 years with periodic price resetting and exit option.

On RIL’s proposed pricing formula, the EAC has opined that the formula appears to be broadly in line with industry practices that use a mix of a base price, constants, multiplicative factors and pass-through of traded prices of competing fuels, with or without cap. However, anomalies arising out of linkage to the exchange rate and the market-clearing premium would need to be resolved.

The anomaly could be done away by denominating the formula in US dollars and the price payable in rupees at the prevailing exchange rate. Under the RIL formula, the discovered well head price turned out to be $ 4.33 per mBtu. The delivered price would be in the range of $4.76 - $5.98 without taxes, sources said.

Regarding allocation of gas to the priority sectors, or those companies not at arm’s length from RIL, the EAC has suggested that it should be at the same discovered competitive arm’s length price.

The EAC has also suggested that in order to avoid similar disputes in future, the Government should put in place guidelines on use of formula in the price discovery process, including the currency in which it should be denominated. It has also proposed that once gas utilisation, pricing and bidding policies are in place, the Government may consider either appointing or extending the ambit of the existing downstream gas regulator to scrutinise and approve the wellhead (market) pricing.

Further, it has proposed that the Petroleum and Natural Gas Ministry may take appropriate action to put in place suitable mechanism for proper scrutiny of capex, developmental expenditure and production profiles to ensure that gains to the Government are maximised under the profit sharing arrangements.

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