Oil Min wants Committee of Secretaries to scrutinise RIL, Essar pricing proposals

While Essar proposes prices at $4.2 per mmBtu, RIL wants a rate equivalent to the price at which India imports gas

Oil Minister S Jaipal Reddy has written to Prime Minister Manmohan Singh seeking the formation of a committee of secretaries to scrutinise the coal-bed methane or CBM pricing proposals of Reliance Industries and Essar Oil.

The Oil Ministry has been trying since July to get an Empowered Committee of Secretaries (ECS) to vet the separate price proposals of RIL and Essar but the panel has so far not decided to take up the issue.

Reddy last week wrote to the Prime Minister, saying the issue of pricing of natural gas to be produced from below coal seams, called CBM, would be submitted to the Cabinet Committee on Economic Affairs (CCEA) for consideration, an oil ministry official said.

But, before that, the price proposals need to be either scrutinised by a Committee of Secretaries headed by Cabinet Secretary or by the Prime Minister's Economic Advisory Council Chairman C Rangarajan, Reddy wrote to the Prime Minister.

While Essar has proposed to price CBM from its Raniganj block in West Bengal at $4.2 per million British thermal unit, RIL for its Sohagpur CBM blocks in Madhya Pradesh wants a rate equivalent to the price at which India imports gas.

The official said the ministry is proposing the CoS/PMEAC route for approving the CBM price as RIL's eastern offshore KG-D6 gas price too was first vetted by the panel headed by Cabinet Secretary and PMEAC before an Empowered Group of Ministers (EGoM) approved the $4.2 per mmBtu rate in 2007.

The Oil Ministry is willing to go with the Essar proposal to sell gas from Ranigang block to Matix Fertilizer and Chemicals at $4.2 per mmBtu even though the Directorate General of Hydrocarbon (DGH) opined that the two were related parties.

In case of RIL, the ministry is unwilling to accept a rate of $12.93 per mmBtu at $100 a barrel oil price.

The DGH had in April recommended acceptance of this price as it was arrived on an arms-length basis. But on June 22 it did a u-turn to reject it saying it was not in conformity with the government policies.

RIL wants to price CBM gas at 12.67% of JCC, or Japan Customs—Cleared Crude, plus $0.26 per mmBtu. At $100 per barrel oil price, gas will cost $12.93 per mmBtu.

The formula proposed by RIL is the same at which Petronet LNG Ltd, the nation's largest liquefied natural gas importer, buys 7.5 million tonne per annum (30 million standard cubic meters per day) of LNG from RasGas of Qatar.

RasGas charges 12.67% of JCC and Petronet, which is headed by Oil Secretary, pays a further $0.26 per mmBtu for shipping the gas in its liquid form (LNG) from Qatar.