NEW DELHI: 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.
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 reived 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, reviewed by ET. 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.
The letter says “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”.
“Now ball is in the court of the oil ministry and it will take an appropriate decision,” said a DGH official said requesting anonymity. The oil ministry, DGH and RIL did not respond to ET’s queries.
According to the contract, the government must approve RIL’s pricing formula in 60 days. The Oil ministry had in-principal accepted RIL’s pricing mechanism on February 22 and had asked DGH to scrutinize it. ET first reported on Mar 24 that Reliance is likely to sell CBM at a price of at least $10 a unit as the oil ministry felt the company had followed correct procedures of inviting bids on an arm’s length basis.
Bids of 14 prospective buyers including Karnataka Power, IFFCO, NTPC, Indo Gulf Fertilizer, Nagarjuna Fertilisers, NFL, Tata Chemicals, Rashtriya Chemicals & Fertilisers, Chambal Fertilisers and Gujarat State Fertiliser Co was rejected due to non-serious bidding, DGH officials said.
RIL told the government that fertilizer companies offered non-serious bids in spite of buying liquefied natural gas from spot markets at 3-5 times the price they had quoted for CBM. “RCF has submitted a ridiculous bid which amounts to the contractor/government paying RCF $2.75 per mBtu for privilege of supplying gas to it. The price quoted by Tata Fertiliser Ltd similarly comes to a measly $1.55 per mBtu at the same level,” DGH official said quoting from RIL’s letter.
Companies that offered valid bids include Alok Industries, JSW Ispat, Andhra Pradesh Gas Power Corp, Nirma, Indiabulls Power, DLF Utilities, Essar Oil, GVK, GSPC, Torrent Energy, Adani Gas, BPCL, Mahanagar Gas and Bhagyanagar Gas, DGH officials said. RIL plans to produce 3.5 million metric standard cubic metres a day of methane gas from its blocks in Madhya Pradesh from mid-2014.
Reliance had first submitted is pricing mechanism last September for approval, but the oil ministry rejected it saying that bids were invited from a limited number of customers. RIL submitted another proposal to the ministry on February 22 following an open bidding process.
A top oil ministry official had said last month that the pricing mechanism would be approved in a month and the oil ministry was competent to take a decision without refereeing it to the empowered group of ministers.
“It need not go to EGoM because it is on a cost recovery basis, and we (the ministry) should be able to decide within a month,” the official had told reporters on the sidelines of the 7th Asia Gas Partnership Summit held in the Capital.