This refers to your editorial ‘The smell of gas’ (June 17). The MoU between Reliance Industries Ltd (RIL) and Reliance Natural Resources Ltd (RNRL) for the supply of 28 mmscmd of gas was fixed on the basis of RIL’s own lowest bid offer in an international competitive bid floated by NTPC. The
NTPC bid was a truly competitive bid and hence the benchmark for the price to be paid by RNRL. The NTPC contract was not concluded because of a specific dispute over a liability clause, not on account of any dispute over the price or the bid process.
As for government’s gas allocation policy ensuring that NTPC and RNRL could not bid for more RIL gas in the event of their claim not being upheld by the courts, this is a mere conjecture on your part. If Essar, a business rival of RIL, can claim and obtain gas allocation, there is no reason to believe that NTPC or RNRL were expressedly prohibited from claiming a share in the allocation pending disposal of the court cases.
However, you’re absolutely right in concluding that the government needs to explain its stance, but not only for the reasons you have given, but also because the government should have intervened earlier when RIL put in a bid in response to the NTPC tender. In fact, $2.34 should have been approved by the government since it was a truly market-discovered price. The finance ministry’s concern that a lower price would entail a lower profit-share for the government is misplaced. According to the terms of the Production Sharing Contract, the government’s profit-share kicks in only when all costs are recovered. RIL has claimed a total exploration and production cost of $8 billion, which means the government is unlikely to get too much for the next six to seven years, even when the price is $4.21 per mmBtu. By then, the gas could well have peaked and begun to deplete!
G M Shankar, email
