DGH approves RIL's CBM price formula

The directorate general of hydrocarbons (DGH) has endorsed Reliance Industries' pricing formula for coal bed methane (CBM) from its Madhya Pradesh blocks but raised two queries that could further delay the pricing approval, according to a report.

Reliance had invited price bids from potential CBM customers. The oil ministry has to check whether these customers are not affiliated to the company in any way so that the prices are fairly determined. The company received 73 bids, of which 59 were valid.

"Out of 73 bids received by contractor (RIL), 70 seem to be unrelated and by non-affiliated parties and, therefore, appear to be at arm's length," DGH said in a letter to the oil ministry, according to The Economic Times which says it has reviewed the letter. It has, however, remarked that Reliance's reason for considering only 31 out of 59 valid bids was not clear and the company did not calculate gas price for all valid bids in its application to the government.

"RIL has initiated bids in the open market and, therefore, the price discovery process followed by the contractor is in compliance with article 18.6 of the CBM contract and subsequent guidelines," the letter says.

"Now ball is in the court of the oil ministry and it will take an appropriate decision," said a DGH official requesting anonymity. The oil ministry, DGH and RIL did not respond the report said.

According to the contract, the government must approve RIL's pricing formula in 60 days. The petroleum ministry had in principle accepted RIL's pricing mechanism on 22 February and had asked DGH to scrutinise it.