Govt for market-driven price for RIL gas

The government is keen on ensuring that gas from Reliance Industries' (RIL) D6 block in the Krishna-Godavari basin is sold at market-driven prices, rather than at lower administered rates.

"The government's concern is that if the gas is sold at lower prices, the share of profit that the government gets will be much lower...and would materialise much later" an official in the petroleum ministry said.

Under the production-sharing contract with the operators of oil blocks""RIL in this case ""once commercial sale of oil or gas starts, the operator would keep a majority share of the profits until recovery of investments in the block, with the government getting a lower share. Later, the share of the contractor would decrease and that of the government would increase .

RIL, promoted by Mukesh Ambani, is set to spend $8 billion in the block.

To determine the market-price of its gas, RIL had invited bids from five power and five fertiliser companies and "discovered" a price $4.79 per million British thermal unit (mBtu).

RIL is expected to start production in June 2008 and ramp it up to 80 million standard cubic metres per day (mscmd) by mid-2009.

Gas supply from KG basin is, however, under dispute with Reliance Natural Resources Ltd (RNRL)""a company promoted by Anil Ambani""claiming that 28 mscmd gas is committed to it, while NTPC has 12 mscmd.

The Bombay High Court, in an interim order on June 20, had restricted RIL from selling its K-G gas to any company other than Reliance Natural Resources (RNRL) and NTPC.

"The government has not taken a final decision on appealing to the Supreme Court yet. We will wait for the final order in July, and then decide how to go about things ," said a senior government official.

The ministry official added that the government would price the gas as per the production sharing contract for the block, which talks about a market-driven price for the gas.

When contacted, an RIL spokesperson said that its production plans from the D6 block, which holds 11.2 trillion cubic feet of gas, would depend on how the government reacts to the High Court order.