Indian Government Allow RIL to Price KG-D6 Gas Higher

The Petroleum Ministry in India, have said that at the $4.20 per mmBtu price fixed by an Empowered Group of Ministers for gas from Reliance Industries' KG-D6 fields was only for the purpose of valuation of Government share and the selling price could be higher.

In a presentation on pricing of natural gas to the Parliamentary Standing Committee on September 11, the ministry said the minutes of the EGoM meeting held on September 12, 2007 suggest that the price formula approved was for valuation of the gas for the purpose of determining Government share.

"But we have been referring to it as selling price in ministry's communications," the ministry informed the Parliamentary panel.

The price formula approved last year had taken the biddable parameter in the formula at zero and since the EGoM had mentioned that the "biddable character of the formula" be retained, the ministry said "the (actual) selling price could be higher (than $4.20 per million British thermal unit)."

Reliance had submitted to the Government a formula for determining the selling price of gas from its eastern offshore KG-D6 fields which the EGoM tweaked to "bring the price down by about 8 per cent."

The EGoM approved the price basis/formula according to which the minimum delivered price of gas at landfall point would be USD 4.20 per mmBtu for five years from the date of commencement of supply.

EGoM, the ministry said, had decided that price discovery process for determining the rates at which the fuel would be sold, would be on arm's length basis. The price thus discovered would be uniformly applicable to all the sectors.

Reliance is to begin gas production from KG-D6 in January 2009 with an initial production rate of 5 million standard cubic meters per day. This would go up to 25 mmscmd by March 2009 and further to 40 mmscmd by May 2009 and 55 mmscmd by July 2009.

Author: Jo Amey