Fertiliser firms want to be paid for using RIL gas

In a surprise move, fertiliser firms like RCF have sought supplies of natural gas from Reliance Industries at a price that would mean getting paid for buying the fuel.

In response to the bids called by RIL for the gas it plans to produce from coal seams in Madhya Pradesh, Rashtriya Chemicals and Fertilisers Ltd has quoted a low rate.

If accepted it would result in Mukesh Ambani-led firm not just supplying 2.5 million cubic meters per day of gas free of cost but also paying $2.75 per million British thermal unit (mmbtu) to the fertiliser firm.

Sources privy to the development said fertiliser firms put very low bids in the tender invited by RIL to discover the price of gas it plans to produce from Sohagpur coal-bed methane (CBM) block by end-2014.

RIL had invited companies to quote a variable 'v' that can be added or subtracted from its CBM pricing formula of 12.67% of JCC, or Japan Customs-Cleared Crude, plus $0.26 per mmBtu.

RCF quoted a negative 15.05, sources said adding at $95 per barrel oil price, this translated into RIL paying $2.75 per mmBtu to the fertiliser firm besides supplying gas.

Tata Chemicals Ltd quoted a price of a measly $1.55 per mmBtu.

Indo Gulf Fertiliser Ltd, Nagarjuna Fertilisers and Chemicals Ltd, Deepak Fertiliser and Petrochemical Corp Ltd and National Fertiliser Ltd too quoted a negative value of 'v' ranging between 9.45 to 10.38.

Sources said RIL on February 21 wrote to the Oil Ministry saying "non-serious" bids of these fertiliser companies and eight others had been rejected as they were "not aligned to the market".

Despite these, the company's pricing formula of 12.67% of JCC plus $0.26 per mmBtu had generated a demand six times the 3.5 mmcmd gas it will produce from Sohagpur blocks.

At $100 per barrel oil price, CBM from RIL's Sohagpur CBM blocks in Madhya Pradesh will cost $12.93 per mmBtu.

The pricing formula RIL has proposed for CBM is different from the one natural gas from the company's eastern offshore KG-D6 block is priced at. KG-D6 gas at cap crude oil price of $60 per barrel translates into a sale price of $4.205 per mmBtu. Sohagpur CBM at $60 per barrel oil price would be $7.862 per mmBtu.

Sources said RIL told the ministry that it got 59 valid bids seeking about 70 mmscmd of gas in open bids that were invited as per the provisions of the Production Sharing Contract (PSC) to discover market price of CBM.

It got a demand of 20.63 mmcmd (about six times the gas offered for sale under the process of price discovery) if the biddable parameter 'v' is kept at zero.