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Fertiliser Firms Want to Be Paid for Reliance Gas Use

In bid for CBM gas, firms quote price below cost of production

  • In a surprise move, fertiliser firms like RCF have sought supplies of natural gas from Reliance Industries at a price that would mean getting paid for buying the fuel.In response to the bids called by RIL for the gas it plans to produce from coal seams in Madhya Pradesh, Rashtriya Chemicals and Fertilisers has quoted a low rate. If accepted it would result in Mukesh Ambani-led firm not just supplying 2.5 million cubic metres per day of gas free of cost but also paying $2.75 per million British thermal unit (mmBtu) to the fertiliser firm.

  • Sources privy to the development said fertiliser firms put very low bids in the tender invited by RIL to discover the price of gas it plans to produce from Sohagpur coal-bed methane (CBM) block by end-2014.RIL had invited companies to quote a variable ‘v’ that can be added or subtracted from its CBM pricing formula of 12.67 per cent of JCC, or Japan Customs-Cleared Crude, plus $0.26 per mmBtu. RCF quoted a negative 15.05, sources said adding at $95 per barrel oil price, this translated into RIL paying $2.75 per mmBtu to the fertiliser firm besides supplying gas.

  • Tata Chemicals quoted a price of a measly $1.55 per mmBtu. Indo Gulf Fertiliser, Nagarjuna Fertilisers and Chemicals, Deepak Fertiliser and Petrochemical Corp and National Fertiliser too quoted a negative value of ‘v’ ranging between 9.45 to 10.38.Sources said RIL told the ministry that it got 59 valid bids seeking about 70 mmscmd of gas in open bids that were invited as per the provisions of the production sharing contract (PSC) to discover market price of CBM.

  • It got a demand of 20.63 mmcmd (about six times the gas offered for sale under the process of price discovery) if the biddable parameter ‘v’ is kept at zero.RIL will charge $0.15 per mmBtu as marketing margin over and above the CBM price and the customers would also have to pay for taxes/duties and transportation tariff. The CBM price, it said, represented a “true arms length market price that meets all the requirements of price discovery and brings maximum benefits” to the government.Sources said RIL cautioned against non-acceptance or modification of the proposed formula saying government’s share of profit from the CBM production, royalty and taxes would be impacted by any such move.

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