Centre okays RIL's gas price

The empowered group of ministers (EGoM) today approved the pricing formula proposed by Reliance Industries Ltd (RIL) for its Krishna-Godavari (K-G) basin gas. The group, though, did make minor modifications that reduced the delivered price of gas.

"The decision of the EGoM will lead to a price of $4.20 per million British thermal units (mbtu) at delivery point. The approved price is 8.32 per cent lower than that proposed by contractors," the petroleum ministry said in a statement.

Approval of the formula, and the pricing, was critical for RIL, which had warned that delays could upset its gas production schedule.

The company is slated to start production of 40 million standard cubic metre per day (mscmd) of gas from the K-G basin by July 2008 and ramp it up to a peak production of 80 mscmd subsequently. This almost matches India's current production of gas and is expected to wipe out the demand-supply gap of gas in the country.

There is, however, a question mark on how much of this gas would be available to users, given the interim order of the Bombay High Court, which says that all of RIL's K-G basin gas is already locked up with Anil Ambani's Reliance Natural Resources Ltd (RNRL), NTPC and for captive use by RIL.

Reports of the approval triggered a 52-week high for the RIL stock, which touched Rs 2,022 at the Bombay Stock Exchange today. Its shares closed 1.34 per cent up at Rs 2,012.95. "RIL was ready for a few cents knock-off on the gas price anyway. The end of uncertainity on pricing is a big positive," an analyst said.

The EGoM, headed by External Affairs Minister Pranab Mukherjee, managed a reduction in price by sticking to dollar pricing for the K-G gas (instead of rupee pricing) and capping the price of crude in the variable portion of the formula at $60 per barrel, instead of $65 proposed by RIL and its partner, Niko Resources Ltd.

"We welcome the EGoM recommendations. We are now focused on ensuring timely execution of this pioneering deep- water facility in India," said an RIL official.