Moneycontrol » News » Business » Economy

Govt reserves right to review RIL-NTPC price

Published on Fri, Sep 14, 2007 at 10:32 | Source : Moneycontrol.com

Updated at Sat, Sep 15, 2007 at 14:21

Like this story, share it with millions of investors on M3

Share on Tumblr

Excerpts from Bazaar on CNBC-TV18 Watch the full show »

RELATED NEWS

Nifty

BSE | NSE 25/05/12

Are Mutual Funds betting on Nifty?

Oil Secretary M S Srinivasan said the gas price of USD 4.20 is going to be reviewed after five years. He doesn't see power and fertiliser sectors being impacted negatively.

The Oil Secretary said the subsidy for fertilisers will come down by Rs 3,000-4,000 crore p.a. He ascertained that the government has a right to regulate gas distribution.

They did not call for a rebid as it would have led to cartelisation, he said. The gas sale is for the end user and not for trading.

There is more the oil secretary says the government reserves the right to review prices of the RIL-NTPC and RIL-RNRL deals even after the court ruling.

Srinivasan: As much as these cases are pending before the court, and the volume had been earmarked for these cases, that volume has not been taken into account for allocation now. They said, they will depend upon how the court decides on the matter.

As long as the sale has followed a transparent, open, arms length transaction process, and as long as the sale is between two unrelated entities, government is within its rights to accept the price or to modify it marginally.

Excerpts from CNBC-TV18's exclusive interview with M S Srinivasan:

Q: Will the minimum price for gas be the floor price?

A: This will be the wellhead price of gas. It is going to be reviewed every five years and depending on sales it may go up or go down. I can't take it as a floor price now as it is the accepted price.

Q: What about long-term contracts of say 17-20 years, will this gas price then be reviewed every five years?

A: In line with international practices, for any proposed price revision the producer has to come back to the government after five years.

Q: Is gas prices of all contracts going to be reviewed every five years?

A: All the length contracts will undergo this condition.

The conditions are very clearly laid out in the production-sharing contract. Gas has to be sold by the producer to the user. It is not for trading purposes, definitely not. If more clarity is required, we will definitely come out with a clear instruction on that.

Q: So, the age of cheap gas is over. What kind of impact do you see it having on fertilizer and power sectors as concerns are being expressed by both these sectors that the price of gas at USD 4.20 and the proposed price of USD 4.33 would make it very expensive for these consumers?

A: The Economic Advisory Counsel of the Prime Minister says the fertilizer and power sectors will not lose at the proposed price of USD 4.33. In fact, the fertilizer ministry had written to us saying they could pay up to USD 5. That's an average range. At a price of say USD 5.5-6, the power tariff works out to between 2.5-2.6, which we can live with.

Q: So you don't see much of an impact?

A: We don't see anything. At this price, the subsidiary outgo by the government towards fertilizer production will come down.

Q: By how much?

A: Over the next two years, we expect the reduction to be in the range of Rs 3,500-4,000 crore annually.

Q: The government has dealt with the gas price scene. What about allocation, can you legislate something like allocation? Can you tell a company or a gas producer that they need to reserve X-quantity for certain priority sectors?

A: The key factor here is the price. Once they have determined or decided that the gas price should be uniform across the sector, the producer becomes indifferent and neutral to whom he supplies, as long as he gets a uniform price. It doesn't matter to whom he supplies to.

The government is well within its right to set its national priorities. If I want food security to be given high priority, then I would say produce more fertilizers. What matters is the price. As long he does not lose by supplying to priority sectors, it doesn't matter to him really.

Q: Can you legislate or make it mandatory for a gas producer to let's say sell half of the gas output to certain sectors?

A: The government has every right to determine a national priority. Even legislation will not be required for this, it could be done through an executive fiat.

Q: What is the reason for not calling for re-bids because the economic advisor counsel had also said that you should ask Reliance Industries to call for re-bids for sake of transparency?

A: This was considered in depth by the Empowered Group of Ministers. One, EGoM was of the view that the sectoral priority had been observed by the contractor in calling for bids and secondly, some reasonable presumptions had been made by him, with regard to the readiness of the unit, size of the unit, etc. All these factors weighed into the EGoM's mind when they decided that a transparent bidding system had been adopted and the volume which was available for allocation had only been taken into account by the bidder and so they said they could go ahead without calling for re-bids.

Q: Is it true that the petroleum ministry had also told EGoM that if it called for re-bids there would be cartelization of power and fertilizer units and that there had been evidence of cartelization of fertilizer units in the manner in which they bid for gas?

A: You are absolutely right. Once the prospective customers know there is a re-bid, cartelization will be even more evident and even in the first round cartelization was there for all to see.

Q: Is the NTPC-RIL case in the RIL- RNRL case is taken by the EGOM at all?

A: Very much and as much as these cases are pending before the court and the volume had been earmarked for these cases, that volume has not be taken into account for allocation now and they said they depend upon how court decides the matter.

Q: Does the government have a final say on pricing depending on what the court decides on volumes with these cases. Would they have to come back to the government to get a nod on just the pricing?

A: Here the primary feature is what is set out in the PSC ( production sharing contract) documentation. Namely, as long as the sale has followed a transparent, open, armsling transaction process and as long as the sale is between two unrelated entities government, it is within its rights to accept the price or to modify it marginally.

Q: So will the government allow secondary sale of gases?

A: The conditions are clearly laid out in the production-sharing contract; gas has to be sold by the producer to the user and it is not for trading purposes. If more clarity is required they will definitely come out with a clear instruction on that.

For complete interview, watch video...