The Empowered Group of Ministers (EGoM) on Wednesday cleared the Reliance Industries Ltd (RIL) pricing formula for the sale of gas from its D6 field in the Krishna-Godavari basin.
The minor changes incorporated in the formula will lead to a gas price of $4.20 per million British Thermal Unit (MMBTU) at delivery point, which translates into a price of Rs 172.20 per MMBTU at the prevailing rupee-dollar exchange rate. The approved price is 13 cents lower than the price proposed by RIL.
In line with the Prime Minister?s Economic Advisory Council recommendations, the EGoM decided that the gas price would be denominated in dollars.
The EGoM also said it would not be in the country?s interests to renege from contractual provisions under the production sharing contracts entered into under the New Exploration & Licensing Policy (Nelp).
An official release stated, ?The EGoM decided that the cap for price of crude in the variable portion of the formula would be frozen at $60/barrel instead of $65/barrel, as proposed by RIL. This would in turn translate into a lower consumer price. This price basis/formula will be valid for five years from the date of commencement of first commercial production and supply.?
The release further said the decisions taken at Wednesday?s EGoM meeting would be without prejudice to the NTPC vs. RIL and RNRL vs. RIL court cases, which are at present sub-judice. For all Nelp-I to Nelp-VI contracts for natural gas price calculation, the constant will be pegged at $2.50/MMBTU. The EGoM observed that assigning a value of zero to the only biddable component (referred to as ?C?) in the submitted formula would also address the transparency aspect of the bidding process.
?RIL had proposed the value of ?C? at Rs 4/MMBTU whereas the fertiliser units had bid a low of Re 1/MMBTU for ?C?,? the release said. Every process on arms-length basis will be adopted in future Nelp contracts only after the approval of the price basis/formula by the government. The price discovered through this process would be applicable to all sectors uniformly. Gas production from RIL?s block is likely to commence from July 2008.