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RIL can sell KG gas at higher than discovered price

RIL can technically sell its Krishna-Godavari (KG) basin gas at a price higher than the government-discovered price of $4.20 per million British thermal units (mBtu).

, ET Bureau|
Sep 22, 2008, 02.03 AM IST

NEW DELHI: Reliance Industries (RIL) can technically sell its Krishna-Godavari (KG) basin gas at a price higher than the government-discovered price of $4.20 per million British thermal units (mBtu). The thought has put the government in a tizzy as the countdown for natural gas production from RIL���s D-6 block has started. In the government���s opinion, nothing stops RIL to charge more than $4.20 per mBtu for the gas even as the petroleum ministry termed it as selling price in all its communication.

���The empowered group of ministers (EGoM) on pricing and utilisation of New Exploration Licensing Policy (Nelp) gas approved the pricing formula on September 12, 2007, for determination of the government���s share (profit petroleum) and not the selling price,��� an official source said. The pricing formula, approved by the EGoM on September 12, is valid for all contracts under Nelp for five years.

In comments on Sunday morning, RIL chairman Mukesh Ambani indicated that he would like to review the $4.2 price fixed by the EGoM. ���In the long term, we must have a road map towards market pice,��� Mr Ambani said. The government is studying implications of the September 12 decisions on future gas production by other companies under the Nelp.

The EGoM minutes mention that ���the biddable character of the formula��� must be retained. This indicates that the selling price of the gas could be higher than the discovered price of $4.20 per mBtu at the delivery point, the source said. ���Though in the present instance the value of C is to be retained at zero, for the purpose of retaining the biddable character of the formula and allocation of gas amongst priority sectors, the formula must retain C as a positive non-zero integer,��� the September 12 minutes said.

Another area of concern is the validity of the gas formula approved by the EGoM on September 12. The formula is applicable to all contracts signed under Nelp-I and Nelp-VI. According to the EGoM minutes, the pricing formula will be valid for five years from the date of commencement of supply.

There will be several gas production under Nelp-I to VI, including ONGC���s 6.7 trillion cu ft gas from the east coast. Production from different fields would differ in date. It is not clear whether the same pricing formula would be valid for varying periods for various contracts, the source said.

The EGoM, constituted on August 13, 2007, to examine and decide the issue of gas pricing and commercial utilisation of gas under Nelp had accepted the pricing formula submitted by RIL and Niko Resources with modifications as per recommendations of the prime minister���s Economic Advisory Council (EAC).

The EGoM was chaired by minister for external affairs Pranab Mukherjee and comprised of power minister Sushilkumar Shinde, minister of chemicals & fertilisers and steel Ram Vilas Paswan, minister of finance P Chidambaram, minister of law & justice H R Bharadwaj, minister of petroleum & natural gas Murli Deora, minister of corporate affairs Prem Chand Gupta and Planning Commission deputy chairman Montek Singh Ahluwalia.
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