Fertiliser companies want to be paid for using RIL gas

In a surprise move, fertilizer firms like RCF have sought supplies of natural gas from Reliance Industries at a price that would mean getting paid for buying the fuel.

Updated: Mar 11, 2012, 12:18 PM IST

New Delhi: In a surprise move, fertilizer 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 Ltd has quoted a low rate.

If accepted it would result in Mukesh Ambani-led firm not just supplying 2.5 million cubic meters per day of gas free of cost but also paying USD 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 percent of JCC, or Japan Customs-Cleared Crude, plus USD 0.26 per mmBtu.

RCF quoted a negative 15.05, sources said adding at USD 95 per barrel oil price, this translated into RIL paying USD 2.75 per mmBtu to the fertiliser firm besides supplying gas.

Tata Chemicals Ltd quoted a price of a measly USD 1.55 per mmBtu.

Indo Gulf Fertiliser Ltd, Nagarjuna Fertilisers and Chemicals Ltd, Deepak Fertiliser and Petrochemical Corp Ltd and National Fertiliser Ltd too quoted a negative value of 'v' ranging between 9.45 to 10.38.

Sources said RIL on February 21 wrote to the Oil Ministry saying "non-serious" bids of these fertiliser companies and eight others had been rejected as they were "not aligned to the market".

Despite these, the company's pricing formula of 12.67 percent of JCC plus USD 0.26 per mmBtu had generated a demand six times the 3.5 mmcmd gas it will produce from Sohagpur blocks.

At USD 100 per barrel oil price, CBM from RIL's Sohagpur CBM blocks in Madhya Pradesh will cost USD 12.93 per mmBtu.

The pricing formula RIL has proposed for CBM is different from the one natural gas from the company's eastern offshore KG-D6 block is priced at. KG-D6 gas at cap crude oil price of USD 60 per barrel translates into a sale price of USD 4.205 per mmBtu. Sohagpur CBM at USD 60 per barrel oil price would be USD 7.862 per mmBtu.

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 USD 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.

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 tonne per annum of LNG from RasGas of Qatar.

RasGas charges 12.67 percent of JCC and Petronet pays a further USD 0.26 per mmBtu for shipping the gas in its liquid form (LNG) from Qatar.