Mukesh Ambani’s Reliance Industries is close to signing Memoranda of Understanding (MoU) with state-owned fertiliser companies for supplying gas at close to $4 (around Rs 170) per million British thermal units (mBtu).
One mBtu is a unit of heat equal to 1,000,000 Btu; the thermal equivalent of 1,000 cubic feet of gas with a heat content of 1,000 Btus per cubic foot.
RIL has been targeting a price of $4.5 per mBtu. However, it seems that some hard negotiations might have led to a lower price or there may have been some indications from the government on the desired price levels for the power and fertiliser sectors.
According to sources in the industry, RIL has sent across its recommendations to state-owned fertiliser companies including the Mumbai-based Rashtriya Chemicals and Fertilisers Ltd, and the MoU is likely to be signed in the coming week, RCF sources said.
An RIL spokesperson did not wish to go on record on the subject, especially since the issue involves price negotiations. RIL has been negotiating to keep the price band between $4.5 (Rs 190.92) and $5 (Rs 212.13). PMS Prasad, president, petroleum of RIL had said last week that the company is looking at a price of $4.5 per mbtu.
Pricing of RIL gas has been a thorny issue. "Honourable minister Ram Vilas Paswan wants that fertiliser should be given priority and fertiliser companies should be given gas at Administrative Price Mechanism (APM) rate," said Uday Shankar Jha CMD, RCF, speaking about the supply of gas to fertiliser companies.
The fertiliser subsidy burden can be reduced on the government can be reduced only if gas is supplied at a concessional rate, he said.
Sources also said that the MoU would be signed between the fertiliser companies and RIL in the coming two to ten days. Documents for the MoU has already reached the companies.
The government has ordered a complete migration of all fertiliser manufacturers from a fuel oil and naphtha based production to a gas and Liquified Natural Gas (LNG) based model.
RIL would supply gas from its giant reserve in the Krishna Godavari basin for uses in fertiliser and power sectors. Union minister for chemicals and fertilisers, Ram Vilas Paswan had said that the government was planning to enforce the Administrative Price Mechanism on gas.
Reliance Petroleum, which is part of the national gas grid mooted by the government, is investing between Rs 25,000 crore and Rs 30,000 crore in a pipeline grid that covers main gas transport trunk.