Fertilizer Minister Ram Vilas Paswan has termed as "unreasonable" the $4.33 per million British thermal unit price sought by Reliance Industries.
NEW DELHI: Fertilizer Minister Ram Vilas Paswan has termed as "unreasonable" the $4.33 per million British thermal unit price sought by Reliance Industries for the gas it plans to produce from KG block next year, saying the price of the fuel should be based on cost of production.
"The price should have some relationship with the cost of production with a reasonable profit to the contractor," he wrote to External Affairs Minister Pranab Mukherjee who is heading an empowered group of ministers on gas pricing.
Paswan said RIL undertook limited bidding that was not "transparent" to arrive at the gas pricing formula. "The formula has been devised by the contractor himself, the basis of which is not very clear. First of all, the basis of this formula, its reasonableness etc will have to be looked into."
Seeking firm commitment for supply of fuel for fertilizer plants, he said Reliance formula was unreasonable because the bidders were asked to quote a very small component of the overall formula and bidding was restricted to 10 selected parties. The formula contains both rupee and dollar component, making it susceptible to rupee-dollar exchange rate.
"The restricted bidding is against the principle of arms length price discovery," he said.
He, however, admitted that RIL gas price could help save Rs 3,000 crore in fertilizer subsidy when plans operating on costlier liquid feedstock switch to gas. But he sought firm commitment for supply of 38 million standard cubic meters per day of gas to existing units and their expansion as also to the eight closed plants and 16 mmmscmd for six new projects.
"The fertilizer industry should be given first priority over domestic gas," he said.
Paswan said the government needs to have a stated utilization and pricing policy of gas before any decision on formula or basis on which the gas price is to be determined.
"Even if the decision on formula needs to be expedited, broad contours of the utilization and pricing policy for gas needs to be laid down so that there is consistency in the decision making process," he wrote.
The minister also questioned the increase in capital expenditure from 2.47 billion dollars to 8.8 billion dollars for the KG-D6 block of RIL, saying the "whole basis of increase is questionable".
"The exact status of reserve need to be carefully ascertained and the increase in capex needs to be closely monitored to ensure that the interests of the government are completely protected and gas, which is the most critical natural resource of the country, is utilized in an optimal manner," he said.
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