Days ahead of the 60-day deadline for approving its gas sale price expired, the Oil Ministry has sought some clarifications from Reliance Industries on the gas it plans to produce from coal seams (CBM), thereby pushing back the approval clock by another two months.
The Ministry had last month told Rajya Sabha that the contract with firms like RIL and Essar Oil, for producing coal bed methane (CBM) or gas from coal seams, provides for approval of the sale price formula within 60 business days "from the date of receipt of proposal or from the date of receipt of clarifications/additional information".
RIL had on February 21 submitted a proposal seeking a price of equivalent to 12.67% of price of JCC, or Japan Customs-Cleared Crude oil, plus $0.26 per million British thermal unit (mmBtu), for the CBM it plans to produce from Madhya Pradesh blocks from end-2014.
Sources privy to the development said the ministry on April 24 wrote to upstream regulator, the Directorate General of Hydrocarbon asking it to seek seven clarifications from RIL.
The ministry will have 60 days to decide on the CBM price from the date on which RIL submits the clarifications.
DGH had on April 3 written to the Oil Ministry saying the RIL's proposed CBM formula was in line with the Production Sharing Contract (PSC) requirement of arms-length pricing.
Sources said the Ministry asked RIL to confirm if the bids it received from users and accepted, were in accordance with the arms length principle and what was the basis of choosing a formula linked to the price at which India imports liquefied natural gas (LNG).
It also wanted to know the "reaons for ignoring the earlier formula for gas price discovery used for KG-D6 block." While KG-D6 gas is priced at $4.2 per mmBtu price, the CBM gas will cost $12.93 per mmBtu at $100 per barrel oil price as per the new formula.
The ministry also wanted to know the basis of charging $0.26 per mmBtu in the formula.
RIL had proposed a formula of 12.67% of JCC, or Japan Customs-Cleared Crude, plus $0.26, plus 'V', where 'V' was the biddable number that users were asked to quote. 'V' could have been either positive or negative.
It invited bid from users in February and got a demand of 20.63 million cubic meters a day (six times the gas available for sale) if the biddable parameter 'V' was kept at zero.
RIL's pricing basis is the same as the formula on which Qatar's RasGas sells 7.5 million tons of LNG to India. RIL says while payments to RasGas do not accrue any gains for the government, a domestic gas producer getting an equivalent price would give the government a higher profit share, royalty and taxes which are directly linked to gas price.
