RIL, ONGC argue case before panel

Reliance Industries for market-determined rate, ONGC for higher price.

Gas producers Reliance Industries Ltd (RIL) and Oil and Natural Gas Corporation (ONGC) today asked the Committee of Secretaries to do away with regulated (read subsidised) price of gas.

Last week, gas consumers "" power and fertiliser companies "" had made a pitch for regulated prices to the same committee, which has been set up by the government to take a final decision on gas prices.

Both RIL and ONGC have recently struck gas in the Krishna-Godavari basin. RIL is slated to start production from the field in June 2008 and ONGC in 2012-13.

RIL made a strong case for a "market-determined" price of gas, as stated in the production sharing contract. The company claims to have discovered a price of $4.33 per million British thermal unit (mBtu) through a competitive bidding process.

On the other hand, government-owned ONGC argued that there could not be a market-determined price "as there is no real gas market in the country where demand is double the supply".

The company, however, wanted a higher price of gas as it is making an annual loss of Rs 700 crore on the gas business. This is because the company is forced to sells most of its gas at a controlled price of below $3 per million British thermal unit (mBtu).

"The gas business is a drag on the company," an ONGC official, who did not want to be named, said.

ONGC Chairman and Managing Director RS Sharma told the committee that gas from deepwater blocks, such as the one from RIL's K-G basin block, should be priced similar to the $4.75 per mBtu that Panna-Mukta and Tapti fields command, sources said. The PMT field is operated by a joint venture between ONGC, RIL and British Gas.

RIL, meanwhile, told the committee it followed a transparent process to discover the price of gas to be produced from its D6 block in the Krishna Godavari basin, refuting allegations that the base of the 10 power and fertiliser companies it had called for bidding for the gas was low.

RIL Chairman Mukesh Ambani told the committee that at a base price of $4.33 per mBtu, the cost of generating power would be less than Rs 2.5 a unit. It would also help save Rs 6,400 crore in fertiliser subsidy annually, as most fertiliser plants are currently using naphtha ($15 per mBtu) or fuel oil ($11 per mBtu), and these fuels can be replaced by cheaper gas.

RIL also told the committee that invited bids from all private and public sector power and fertiliser units having consumption of over 1 million cubic meters per day of gas, and which fall on the route of the pipeline it plans to lay for transporting gas from Andhra Pradesh to Gujarat.

Ambani also said that the government will get $4.6 billion in royalty, profit share and corporate tax if the K-G gas is priced at current subsidised rate of $2.50 per mBtu. But this jumps to $14.5 billion if gas is sold at around $4.5 per mBtu.

At $4.5 per mBtu price of the gas, RIL will get $14.9 billion in revenues, while it will get $6.6 billion in revenues at $2.5 per mBtu gas price. The power and fertiliser ministries had earlier told the committee that gas prices need to be regulated to keep electricity and fertiliser cost low.

Meanwhile, the ONGC chairman also told the committee that the company's $2-3 billion investment in bringing to production small and marginal gas fields was on the premise that it would get market price and the investments would not be fruitful if the price of gas is regulated.

The petroleum ministry, in its presentation to the CoS, had said determining the price of gas was outside the purview of the government, which only had the right to approve the pricing formula that RIL has proposed.

According to the formula, the price of gas at the landfall point in Kakinada works out to around $4.3 per mBtu, at a rupee value of 45 to the dollar. At the current rupee value of around 40 to the dollar, the price of the gas at Kakinada will be $4-4.10 per mBtu.