The Hindu Business Line : RIL not in favour of fresh bids for discovering gas price

Amidst speculations that the Government may call for fresh bids for price discovery of Reliance Industries Ltd’s (RIL) gas from Krishna Godavari Basin, the company has said that it was not in favour of inviting fresh bids.

Any fresh bids would lead to avoidable complications and delays, which would affect project implementation as well as the benefits accruing to the parties to the contract, RIL said.

The President and CEO of RIL’s Petroleum Business, Mr P.M.S. Prasad, is understood to have written to the Petroleum Ministry that the company’s proposal for price approval submitted to the Ministry is in line with the provisions of the production sharing contract and the existing competitive bidding guidelines for valuation of natural gas.

Market distortion

Sources told Business Line that RIL has argued that any fresh bidding process for price discovery would mean cancellation of gas sales and purchase agreement term sheets for over 31 million standard cubic metre per day (mmscmd) of g as already inked with the existing power and fertiliser customers through the bidding process and consequent litigation.

Besides, it would also lead to market distortion and potential cartelisation, as bidding will now be done through a pre-conceived allocation mechanism under an utilisation policy. “The influence of already discovered market price would lead to market distortion,” Mr Prasad said.

“Delay in tie-up of gas markets on account of the said reasons would result in delay in the project completion as well as time and cost over runs resulting in reduced value to the Government and contractor not to mention the delay in gas availability,” he said.

Gas allocation

Regarding having a policy on allocation of gas for certain sectors or companies, Mr Prasad said “it would lead to cartelisation by parties and not constitute a process of arms length price discovery in as much as the price that the favoured allottees of gas would be willing to pay would never be reflective of a true market price of gas.

“The intent of the Government’s gas marketing policy so far has been that the Government needed to do away with the distortions that had crept in through the system favouring certain chosen customers over others and instead let the market fairly determine who would get access to natural gas resources.”

The company reiterated that the price for sale of gas (wellhead price of $ 4.33 per mBtu at Kakinada) is reflective of the price for transactions between willing and unrelated parities. “Declaring the aggregate quantity of production in the bidding process would not have any difference to the price quotes submitted by the customers as their quotes were based on the price they are willing to pay for the gas in competition with other customers.”

Currently, an empowered group of ministers (EGoM) is deliberating on the issue of gas pricing under New Exploration Licensing Policy. The EGoM is considering the suggestions made by the Economic Advisory Council of the Prime Minister and Cabinet Secretary on the matter.