RIL''s gas-pricing faces fertiliser ministry objection

13 June 2007

New Delhi: Reliance Industries'' price-discovery exercise for its gas from the Krishna-Godavari basin has become uncertain following the objections raised by the fertiliser ministry.

RIL''s exercise was based on 10 "indicative" bids, of which five were from government-owned fertiliser companies. The fertiliser ministry has termed these bids as "void" since they do not have the approval of the ministry. The objection of the department of fertilisers has been communicated to the petroleum ministry.

RIL undertook a gas price discovery exercise in early May for its K-G gas, for which it had invited indicative bids from five fertiliser and five power companies. These are typically the largest consumers of gas in the country.

The price, after the 10 bids were opened, worked out to $4.79 per million British thermal unit (mBtu), sources said. This is much higher than the $2.4 per mbtu that the gas-based fertiliser plants are currently paying.

While the department of fertilisers is reluctant to accept a higher price of gas, which would put pressure on fertiliser prices (the fertiliser subsidy bill last year was Rs21,000 crore), its immediate objection is that the fertiliser companies do not have the permission to change to gas from naphtha as feedstock.

RIL''s peak production from the K-G basin is projected at 80 million standard cubic metres per day (mscmd). Production is slated to start in June 2008 at an initial rate of 40 mscmd.