PM panel clears RIL gas price of $4.33/mBtu

The Prime Minister's Economic Advisory Council has approved Reliance Industries' (RIL) $4.33 per million British thermal unit (mBtu) price of gas from KG-D6 fields, saying it was in line with industry practices and priority allocation to fertilizer and power sectors will have to be at market prices.

EAC chairman C Rangarajan, who was asked by the Prime Minister to look into the price proposed by RIL, in his report dated August 8 said the formula was broadly in line with industry practices that use a mix of a base price and pass through of traded prices of competing fuels.

Sources said he, however, asked for doing away with dollar linkage so as to remove the anomalies arising out of linkage to the currency exchange rate.

RIL's delivered price of $5.5 to 6.2 mBtu  translated into an power generation cost of Rs 2.2-2.5 per unit. This is slightly higher than power generated through domestic coal (Rs 2-2.34 per unit) but lower than power produced from imported coal (Rs 2.75-2.9 per unit).

The price would also result in substantial savings in subsidy when fertilizer plants using more expensive naphtha, fuel oil and LNG switch over to RIL fuel, the report said.

EAC said as doubts had been raised on RIL's invitation of only power and fertilizer units along its Kakinada-Ahmedabad pipeline having a minimum consumption of one million standard cubic meters to participate in the bidding process, open bids may be invited from all consumers.

Sources said if refineries, steel plants and glass units, who burn expensive naphtha and fuel oil, are invited in the bidding process, the gas price would increase by at least $1 per mBtu.