RIL seeks market based gas price from Rangarajan panel

Reliance Industries (RIL) has written to the C Rangarajan panel to allow for a market driven pricing mechanism for its  natural gas,  sources told CNBC-TV18 exclusively. The company has also refuted the former oil minister Jaipal Reddy's claims that a higher price of fuel as demanded by it would result in a USD 6.3 billion rise in subsidy burden.

The ministry's argument is that if gas price is hiked from current USD 4.2 million British thermal unit to import parity rates of USD 14.51 per mmBtu, RIL would certainly get an additional USD 4.1 billion revenues. But RIL argues it needs to recover costs made on the project and hence price hike is inevitable, say sources.

The company has also said that the Supreme court had in the RIL-RNRL case said gas price needs to be market aligned and asked the government to revise gas price if it is below the market rate, the RIL has said in the letter to the panel. The company has said it has 5.5 tcf of gas and quoted a price upwards of $10/mmBtu.  

Also, ramping up production at its flagship KG-D6 basin would need higher investments, argues RIL.

It may be recalled that in June, RIL had modified this to seek a rate equivalent to the price India pays for import of liquefied natural gas (LNG) from April 1, 2014 when the current price is due to expire. RIL is seeking to price KG-D6 gas at 12.67 percent of JCC, or Japan Customs-Cleared crude, plus USD 0.26 per million British thermal unit. At USD 100 per barrel oil price, gas will cost USD 12.93 per mmBtu.

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

Meanwhile, according to the Rangarajan committee, the share of profit to the government should commence from the first day of production instead of the existing one where profits start when all costs have been recovered. It has also recommended that the revenue which the contractor will earn even after this should be shared with the government. The committee is expected to submit its final report by December.

RIL has stated that government is not entitled to fix and regulate gas prices and if it forces that company to do so, it would be against the production sharing contract document, which it had signed with the government when it was awarded blocks off the KG-D6 coast.