Reliance Industries Ltd will have to go in for fresh price bids to sell its natural gas from its mega discovery in the Krishna-Godavari basin. This has been recommended by the Prime Minister?s Economic Advisory Committee (EAC), which had examined the issue on a reference made by the PMO.

?Since there appears to be some doubt about the transparency of the bidding process adopted by RIL, especially relating to placing restrictions on who was invited to bid, it may be appropriate to take immediate action to invite fresh bids in a transparent and well publicised manner from all parties, to discover the true arm?s-length competitive price for the gas,? says the EAC report.

The EAC, headed by C Rangarajan, has further observed that this was necessary to make the bidding more transparent. ?True price discovery would have invited all the parties (buyers)?. The EAC felt that though RIL claimed to have applied uniform criteria while inviting bids, there were two problems. The bidding was not ?widely publicised? and was, therefore, selective. Also, the volume of gas on offer was not mentioned upfront.

RIL?s D6 field is expected to produce 80 mmscmd of gas by 2010. By June 2008, it will start producing 40 mmscmd.

While observing that RIL?s pricing formula was broadly in line with industry practice, it virtually ensures the company a fixed price within a narrow band of $4.1-4.24 per million BTU, as long as Brent crude oil prices stay in excess of $40 a barrel. Since oil prices are expected to remain hard, EAC says, ?The formula assures a price of $4.24 per mBTU at all times to the contractor (RIL).?

The EAC has also suggested that the anomalies which arise out of linking to the exchange rate and market-clearing premium can be resolved by denominating the formula in dollars.

At the same time, the actual price payable by buyers would be in rupees, at the prevailing exchange rate.

To avoid similar disputes in future, the EAC has asked the petroleum ministry to put in place specific bidding procedures along with the policies for utilisation and allocation of gas.

It has also said that these policies should ensure a market price based discovery.