By IANS
New Delhi : The ministerial panel led by External Affairs Minister Pranab Mukherjee Wednesday decided to accept with some minor modifications the pricing formula proposed by Reliance Industries for gas found in the Krishna-Godavari basin.
“The sanctity of signed, legally binding contracts should be maintained,” said an official statement issued Wednesday evening, after the empowered group of ministers (EGoM) under Mukherjee met here for the third time.
“The EGoM observed that it will not be in the country’s interest to renege from the contractual provisions under the production sharing contracts entered into in good faith under the new exploration and licensing policy,” it said.
Accordingly, the panel decided that the formula submitted by Reliance Industries and Niko Resources may be accepted with modifications as per the recommendations of the Prime Minister’s Economic Advisory Council (EAC).
The change in the formula decided by the ministerial panel was to peg the price of crude oil at $60 per barrel, instead of $65 proposed by Reliance Industries. Accordingly, there would be a small decline in the original price.
“This price formula will be valid for five years from the date of commencement of first commercial production and supply,” said the statement and added that the price will be denominated in US dollars.
Oil ministry officials said the decision will lead to a gas price of $4.2 per million metric British thermal units (MMBTU) at delivery point – 8.32 percent lower than the price proposed by the Reliance Industries consortium.
Mukesh Ambani’s Reliance Industries wanted higher prices and more customers for the gas, off India’s east coast – a move opposed by his brother Anil Ambani’s Reliance Natural Resources and the state-run National Thermal Power Corp (NTPC).
Following an appeal by Reliance Natural Resources, which sources feedstock for Reliance Energy – both part of the Anil Dhirubhai Ambani Group (ADAG), the Bombay High Court had stayed the pricing plan and suggested that the government look into the issue afresh.
A senior ADAG official in Mumbai said: “The EGoM decision has adequately protected our interest by stating that the decision is without prejudice to the outcome of the case in the Bombay High Court between Reliance Industries and NTPC and Reliance Natural Resources.
“Since the Bombay High Court had already passed an order, 80 mmscmd of gas is already committed to Reliance Natural Resources, this decision will not have any baring on the contract,” he said.
Earlier, emerging from the meeting Wednesday, Mukherjee had said no decision had been taken on the formulae, even as Petroleum Minister Murli Deora said the decision had been left to the chairman of the committee.
Deora also indicated that the EgoM will meet again Sep 19, after Mukherjee’s return from the five-day visit to Southeast Asia, and then a final decision will be announced.
Besides Mukherjee and Deora, the other members of the panel are Power Minister Sushilkumar Shinde, Finance Minister P. Chidambaram, Fertiliser Minister Ram Vilas Paswan, Law Minister H.R. Bhardwaj, Planning Commission Deputy Chairman Montek Singh Ahluwalia and Corporate Affairs Minister Prem Chand Gupta.
The official statement said decisions taken at the EGoM meeting will be without prejudice to the case pending before the Bombay High Court filed by NTPC and Reliance Natural Resources against Reliance Industries.
Earlier, the Communist Party of India-Marxist (CPI-M) had said the government must not leave the pricing formula to the market forces and that it should be based on actual production costs plus reasonable profit.
“Even if the price quoted in 2004 through competitive bidding is indexed to the present, it (the government) can in no way allow an 85 percent hike as RIL (Reliance Industries) has done while fixing the price at $4.33 mmbtu,” the party said.
“The proposition is thus an artificially inflated one and should be rejected.”