EAC seeks transparent bids to find Reliance gas price
EAC suggests Reliance Industries take immediate action to invite fresh bids in a transparent and well published manner from all parties, reports Arun Kumar.business Updated: Aug 19, 2007 22:09 IST
After gas discovery, it is price discovery that is haunting Mukesh Ambani's Reliance Group.
Raising doubts over the transparency of the bidding process adopted by Reliance Industries in the pricing of gas from the Krishna-Godavari basin, the Economic Advisory Council to the Prime Minister has suggested that the group should take immediate action to invite fresh bids in a transparent and well published manner from all the parties in a position to lift gas so as to discover the true "arm's length" competitive price for the gas.
In its report on the pricing of gas obtained from the KG basin, the committee has suggested that, "the volume of gas offered may be indicated in advance and gas supply may be assured for a minimum of 10 years with periodic price resetting and exit options and procedures clearly spelt out. Even for allocation to be made to the priority sector or to the company not at arm's length distance (may be for captive use) should be at the discovered competitive arm's length price."
The pricing formula appears to be broadly in line with industry practices that use base price, traded prices of competing fuels, constants that add to costs and contractual conditions, stated the report and added that the pricing formula thrown open by Reliance Industries falls in the same category. "The anomalies arising out of linkage to the exchange rate and market-clearing premium need to be resolved," the report said.
"While Reliance Industries claims to have applied uniform criteria while inviting parties to bid, since this was not published widely prior to bidding and volume of gas on offer was not indicated upfront, there does appear to be some avoidable lack of transparency from the viewpoint of natural justice," said the report.
The council headed by Dr C Rangarajan said: "Once gas utilization, pricing and bidding policies are in place, the Ministry of Petroleum and Natural Gas may consider the possibility of either appointing or extending the ambit of the existing downstream regulator to scrutinise and approve well head (market) pricing without interfering in the process of the market price."
The committee also suggested that the capital expenditure and production profile should be scrutinised very carefully at arm's length by an independent panel.