Deora nixes Mukesh-Anil gas price deal

New Delhi, Mumbai, July 26 | Updated: Jul 27 2006, 05:30am hrs
The government on Wednesday rejected the $2.34 per mmbtu price at which Reliance Industries Ltd had proposed selling gas from its KG basin block to Anil Ambanis Reliance Natural Resources Ltd. It cited lack of price discovery and non-adherence to the arms length sales criterion, required under the production sharing contract, as the reasons for rejection.

The decision deals a blow to Anil Ambanis ambitious 7,400 mega watt Dadri power project to which gas supplies of 28 mmscmd were to be made by RIL. It is also likely to worsen the relation between the two brothers, already at its nadir.

The government, however, said it had no objection to RIL selling gas to NTPC at the same price, since it was arrived through an international competitive bidding process.

The Ambani brothers had agreed to the $2.34 per mmbtu price as part of the Reliance group demerger scheme, which used the RIL-NTPC price as the basis for the RIL-RNRL deal. The transaction between RIL and RNRL is part of their (Ambani brothers settlement) de-merger agreement and, therefore, does not meet the PSC criteria of arms-length sales, the petroleum ministry said in a statement.

It also noted that the prevailing domestic gas price from fields operated by joint ventures and private companies (Panna-Mukta-Tapti) commanded a significantly higher price than the proposal of RIL.

A competitive bidding process allows fair and equal opportunity to all gas consumers to participate in the price discovery. The same procedure has already been followed by companies including RIL in the Panna-Mukta-Tapti production sharing contracts, the ministry said.

The governments decision follows objections raised by the Directorate General of Hydrocarbons examining the RIL-RNRL gas deal. The DGH had said the government would lose heavily if it agreed to the $2.34 per mmbtu price when the prevailing market price of gas has almost tripled.

Terming the decision as a matter between the government and RIL, an RNRL spokesperson said that RILs obligation to supply gas to NTPC and RNRL at the previously agreed price was not affected. Petroleum ministry officials, however, rubbished this. On its part, RIL said it was examining the order.