The first meeting of the empowered group of ministers (EGoM) on the pricing of gas will see power minister Sushil Kumar Shinde pressing for the approval of the gas price of $2.34 per million BTU discovered by state-owned NTPC Ltd through the international competitive bidding (ICB) route in 2004. Reliance Industries Limited (RIL) emerged the lowest bidder in the ICB at $2.34 per mbtu for sale of its gas for NTPC?s power plants.
Shinde?s brief for EGoM meet on Monday lists three issues?the bidding process adopted by RIL, pricing formula and on the gas utilisation and allocation policies. ?The price discovered by NTPC is in accordance with the provisions of the production sharing contract (PSC), where price discovery has to be on competitive arms length basis, and may be approved by the EGoM,? says Shinde?s brief .
Supporting the observations made by the cabinet secretary in his report on gas pricing, the ministry said that it agrees with the fact that bids were invited by RIL only from the customers having stranded assets or those using alternate fuels. ?The price discovery process cannot be considered arms length basis because of single seller-multiple buyer model and lack of openness in the process.?
The ministry has also supported the proposals made by the Prime Minister?s Economic Advisory Council (EAC) on inviting fresh bids for Reliance gas.
Significantly, it does not support the EAC?s recommendations that RIL?s pricing formula was in line with the industry practices. While the EAC has said the formula has been arrived after using a mix of base price, multiplicative factors and pass-through of traded prices of competing fuels, with or without a cap, the power ministry has again chosen to support the recommendation made by the report of the committee of secretaries (CoS).
The CoS report had said the pricing formula (which resulted in a minimum land fall price of $4.24 per mBTU) accentuates volatility because as the price of brent crude undergoes change from $25 to 26 a barrel (a 4% change), the price of gas increases by $1 per mbtu, an increase of about 30-40%.