Formal Nod To RIL's KG Gas Price After Pranab’s Return

NEW DELHI: RIL’s wait for a formal approval of its gas pricing formula is not over as yet. The government is yet to send in its approval for RIL’s KG Basin gas pricing formula, despite a decision by the empowered group of ministers (EGoM) almost a fortnight back.

The petroleum ministry, it is learnt, is in the process of communicating the formal approval letter to RIL specifying “certain conditions” , including “life of the contract” and “issues related to price revision at the end of the term period of the contract” . EGoM had approved RIL’s pricing formula on September 12 after three rounds of meetings. The group is headed by external affairs minister Pranab Mukherjee.

According to official sources, a formal letter of approving gas price formula is likely to be dispatched to RIL soon after Mr Mukherjee comes back from his foreign visit. RIL is eagerly awaiting a formal approval to go ahead with its gas contracts with potential customers. The gas from the block is scheduled to start flowing in by mid-2008. The delay in getting a formal approval would have an adverse impact on work schedule.

So far, EGoM has approved only a gas pricing formula, applicable to the gas produced under provisions of the New Exploration Licensing Policy (Nelp) one to six rounds. It will meet again in the next month to take up various issues, including commercial utilisation of natural gas under Nelp regime. “The EGoM is not looking at an individual case but it is examining policy issues related to natural gas production,” an official said.

EGoM has only approved the pricing formula for valuation of the government’s profit share, which translates to a minimum selling price of $4.2 per mmbtu. However, RIL is free to sell the gas at a higher price but it will then have to pay a higher profit petroleum to the government.

RIL’s gas pricing formula which was recently approved by EGoM will be applicable for all natural gas producers who have acquired oil and gas blocks under new exploration licencing policy bidding rounds I to VI. A total of 162 blocks have been bid out between NELP I to VI. These companies will now only need to call for price bids from potential customers based on this approved formula to determine the market price at which gas will be sold.