CoS rejects RIL gas pricing

The committee of secretaries (CoS), constituted by the prime minister to examine issues related to the price of gas from the Krishna-Godavari basin, has rejected the price suggested by Reliance Industries Ltd, the operator of the gas field.

The CoS, headed by Cabinet Secretary K M Chandrasekhar, said in the report which was submitted to the prime minister last week, that the price formula arrived by RIL was not based on the competitive market environment and "unfairly exploits the situation of stranded assets of the major consuming sector."

A Reliance Industries spokesperson declined to comment on the CoS recommendations. The price of the gas to be generated from the K-G basin has become a major bone of contention between RIL and the users group, led by Anil Ambani's Reliance Natural Resources Ltd (RNRL) and NTPC.

The future of Anil Ambani's ambitious Dadri project is linked to the availability of gas from the K-G basin.

RIL had said in its presentation to the committee that the delivered price (inclusive of taxes) would be in the range of $5.3 to $6.2 mmbtu (million British thermal units). The company said this price was cheaper than the gas imported and that 70 per cent of the incremental revenue above $3.5 mmbtu would go to the government.

RIL, which is facing a cost overrun on its K-G basin project, said in its presentation that as the inputs were determined by market prices and the output was probabilistic, no regulated price regime could provide an adequate risk-reward balance.

It pointed out that the new exploration and licensing policy allowed the operators to sell oil and gas in the country at market-determined prices.

The Bombay High Court had in its order on June 20 prevented RIL from getting into any third party contract for gas from the D6 block in the K-G basin as the peak production of 80 mmcmd of gas was locked up with NTPC, RNRL and for RIL's captive use.

The CoS report said that in view of the pending court cases against RIL, it would not be prudent for the government to approve RIL's pricing formula at this stage. The CoS report has suggested that RIL's formula could be taken up only after a gas pricing policy is put in place which was overdue by more than six years.