Paswan terms RIL formula 'not reasonable'

Union Chemicals and Fertilisers Minister Ram Vilas Paswan says no pricing formula for gas from the Krishna-Godavari basin should be finalised without considering the needs of the fertiliser sector.

The minister has said the government should first have a policy that specifies the utilisation priorities of gas to be generated by Reliance Industries Ltd from the KG basin before it can fix such a formula.

However, the minister also wants the price to be realistic, one which considers the cost of production with a reasonable profit to the contractor (RIL).

In a recent letter to External Affairs Minister Pranab Mukherjee, who heads the empowered group of ministers (EGoM) that is looking into the gas pricing issues, Paswan said that the direct linkage between the price of gas and fertiliser prices have to be understood before any decision on gas pricing is taken.

"The price of gas for fertiliser sector comprises three components: produce price, transportation costs and taxes. The implication of transportation cost and taxes are also significant on the price of gas delivered to the fertiliser sector.

The EGoM should also discuss the rationalisation of transportation tariff and uniform taxation to ensure a reasonable delivered price of gas." Paswan said. "The EGoM can consider recommending declared goods status for gas as is available to coal", he added.

According to Paswan, the price ($ 4.33 per million British thermal unit) sought by RIL for the gas it plans to produce from KG block next year is unrealistic.

Pointing to the observations made by the Prime Minister's economic advisory council and the committee of secretaries, Paswan said that RIL's limited bidding, based on a formula devised by itself, was not transparent.

"The pricing formula does not appear to be reasonable as the bidders were asked to quote a very small component of the overall formula. The bidding was restricted to 10 selected parties against the principles of arms-length price policy. Further, it contains both rupee and dollar components making it susceptible to rupee-dollar exchange rate", Paswan said.

He also felt that the fertiliser companies had no other option than to quote the lowest possible price within the formula in order to ensure the availability of gas for their units.

Though appreciative of RIL's assurance on the availability of gas to meet the shortfall for existing gas-based units and substitution of all high-cost feedstock being used in gas-based units today, Paswan wanted the government to ascertain a firm commitment for adequate supply of gas for the future capacity expansion plans of the fertiliser industry as well.