Centre tells RIL to supply gas to steel companies at $4.20

The Centre on Tuesday asked Reliance Industries (RIL), owned by Mukesh Ambani, to supply natural gas at $4.20 per million British thermal unit (mmBtu) to a clutch of steel firms, a day after the Bombay High Court asked the company to supply gas to Reliance Natural Resources Limited, owned by younger brother Anil Ambani, at $2.34 mmBtu. The price of $4.20 mmBtu was set by the empowered group of ministers (eGoM) in April this year.

The Centre?s decision is part of its gas allocation policy of 2007. On Monday, the high court ordered RIL to supply natural gas from its offshore Krishna-Godavari D6 field to RNRL at $2.34 per mmBtu for 17 years, about 44 % less than the price set by eGoM.

This central fiat could impact the plan of public sector power company NTPC to procure gas at a lower cost $2.97 mmBtu or below from RIL. NTPC is also involved in a legal battle with RIL over the pricing of natural gas. Earlier, NTPC had approached the court, disputing the ?unilateral changes? made by RIL in the gas sale & purchase agreement.

The government has already asked NTPC to sign the agreement with RIL and has threatened that the allocation of 2.8 mmscmd (million standard cubic metres per day) to the company could be cancelled. That would mean, power generation costs for NTPC would, based on back of the envelope calculations, rise from the Rs 2 kwh?in the case of $2.97 mmBtu?to around Rs 3 kwh in the new pricing mechanism.

But an NTPC official, on a condition of anonymity, told FE, ?Without prejudice to our case against RIL pending judgement in the high court, the price of gas as per the government policy is $4.20 per mmBtu for projects other than Kawas and Gandhar. We have studied the gas sale purchase agreement but have yet to sign it with RIL. We want to discuss certain issues pertaining to the agreement.?

Meanwhile, RIL stock fell another 1.6 % on the Bombay Stock Exchange to 2,143.35, extending Monday?s 7.8% decline after the adverse court order.

RIL will supply 3.75 mmscmd to steel firms like Essar, Ispat and Vikram Ispat. Of the total, Essar will get 2.86 mmcmd, Ispat 0.53 mmcmd and Vikram Ispat the remaining 0.36 mmcmd.

The allocation of gas will benefit these steel units which were forced to purchase costly LNG or naphtha to meet feedstock shortage at their plants. The group of ministers had approved the allocation of unused K-G D6 gas to steel plants that are currently not being supplied their full share of fuel sold at administered prices.

RIL, which is producing around 28 mmscmd of gas from its K-G D6 field, hopes to increase it to 40 mmscmd by end July and 80 mmscmd by the year-end.