Coal bed methane: Another battle on between RIL, oil ministry

Indications are that the other battle between Reliance Industries and the Oil Ministry is getting worse.

The battle pertains to pricing of coal bed methane gas the company has contracted to extract from Madhya Pradesh.

As per RIL’s methodology the gas should be priced $12.93 per mmBtu, while the oil ministry is objecting to it.

According to a report in the Hindu Business Line, RIL has alleged the government’s guidelines on pricing are restrictive in nature.

[caption id=“attachment_514920” align=“alignleft” width=“380”]  At $100 per barrel oil price, gas will cost $12.93 per mmBtu. Reuters[/caption]

The contract mandates that the contractor has “to undertake restricted price discovery from only pre-identified priority sector customers”.

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It is this policy that the company feels is a restrictive method of discovering price.

RIL wants to price CBM gas at 12.67 percent of JCC, or Japan Customs-Cleared Crude, plus $0.26 per mmBtu, a PTI reporthadsaid earlier.

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 tonnes per annum (30 million standard cubic meters per day) of LNG from RasGas of Qatar, the report said.

The company has raised its objection with the C Rangarajan panel, which is reviewing all issues related to production sharing contracts, the HBL report said.

According to the newspaper, the ministry has objected to the company’s pricing proposal on the grounds that it will increase the government’s subsidy burden.

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For every $1/mmBtu increase for 1 mmscmd of gas, the subsidy burden increases by Rs 64 crore annually, the ministry has said, according to another report in HBL.

This will translate to a Rs 1,637 crore increase in subsidy annually, the ministry said in a note. Over 30 years, which is the life of the project, the increase will be a whopping Rs 49,111 crore, the report said.

In comparison, the government’s revenue from the block will be a meagre Rs 56 crore annually and Rs 1684 crore over the project’s life period.

Considering the likely huge subsidy, no surprise the government is objecting to the company’s pricing. It would not want to further increase its already inflated subsidy bill, given its difficult financial situation.