Ministers’ panel on pricing meets today

The power ministry has said that the existing price-discovery mechanism adopted by RIL will not be efficient, reports Arun Kumar.

The power ministry has said that the existing price-discovery mechanism adopted by Reliance Industries Ltd (RIL) will not be efficient because of the existence of a single seller and multiple buyer model, which has resulted in demand exceeding supply, contracts for short durations and a lack of openness in the entire process.

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The ministry’s observations are in line with the views expressed by the committee of secretaries (CoS) and the economic advisory council (EAC) to the Prime Minister that there should be a fresh bidding process for price discovery of gas in the country.

The empowered group of ministers (EGoM) on gas pricing, headed by External Affairs Minister Pranab Mukherjee, will hold its first meeting on Monday — where all the administrative ministries of petroleum, power and fertilizer would place their views — and will also discuss the recommendations of the CoS and the EAC.

In an internal note, the power ministry said that bids were invited only from customers with stranded assets/using alternate fuels. The ministry also feels that the price discovered by NTPC was in accordance with the provisions of the production-sharing contract and may be approved by the EGoM.

“While the court cases between RIL on one hand and NTPC and Reliance Natural Resources Ltd on the other place no bar against the government approving the RIL formula, it may not be prudent for the government to approve the price formula for a quantity of gas that may not be available for sale at that price in case the court verdict goes against RIL,” said the CoS.

On the gas-pricing formula, the CoS said: “Prima facie, the formula appears to suffer from several infirmities.” It called for clarity in policy on gas utilisation.