Prime minister''s panel clears RIL gas price, but suggests review of price bidding

17 August 2007

Mumbai: The prime minister''s economic advisory committee (EAC) has cleared the price set by Reliance Industries Ltd (RIL) for natural gas from its Krishna Godavari block, but suggested a review of the limited bidding exercise carried out by the company for fixing prices.

The EAC said RIL''s $4.33 per mBtu price of gas from KG-D6 fields was in line with industry practices and priority allocation to fertilizer and power sectors should be at market prices.

In fact, the panel said, RIL''s 2004 offer price for NTPC at $2.97 mBtu was lower than "the current discovered market price" and that comparable crude oil prices now were significantly higher than what they were then.

The delivered price of RIL gas of $5.5 to $6.2 per mBtu translated into a power generation cost of Rs2.2-2.5 per unit. This is slightly higher than the cost of using domestic coal (Rs2-2.34 per unit) but lower than that of imported coal (Rs2.75-2.9 per unit), the committee headed by former RBI governor C. Rangarajan said in its report.

The price would also result in substantial savings in subsidy when fertilizer plants using more expensive naphtha, fuel oil and LNG switch over to RIL fuel, the report said.

The panel said RIL''s invitation had confined to only power and fertilizer units along its Kakinada-Ahmedabad pipeline, having a minimum consumption of one million standard cubic metres.