Without prejudice: Statement issued by RNRL
Petroleum Minister's statement on August 3 that the gas production is 35 MMSCMD, clearly confirms the view that contractor is hoarding the gas and only public scrutiny are succeeding in putting pressure on the contractor to increase the production
WE ARE making this statement in the interests of over eight million shareholders of Reliance Natural Resources, Reliance Power and Reliance Infrastructure.
This is with regards to the statement made by Honourable Petroleum Minister in parliament on Thursday (August 6, 2009) on the KG Basin gas.
Availability of gas
1. Honourable Petroleum Minister on Monday, (August 3, 2009), made a statement on the floor of the house that the gas production from KG D6 is 31 MMSCMD. But on August 6, ie, within four days, the Petroleum Minister made a statement that the production is 35 MMSCMD.
2. This clearly confirms our view that the contractor is hoarding the gas and only public scrutiny and comments are succeeding in putting pressure on the contractor to increase the production.
3. Honourable Minister said, “I would like to inform the august house that the scenario of natural gas in the country has undergone a change for the better.” This reaffirms that scarcity is a thing of the past and in the future there would only be gas surpluses.
Pricing of gas
4. While the Honourable minister stated that at the current gas price of USD 4.2 per mmBtu, there would be annual savings in subsidy on fertilisers of Rs 3000 crore. However, this subsidy savings could be substantially higher at more than Rs 5000 crore if the gas was priced at USD 2.34 per mmBtu as quoted by RIL and finalised through an international competitive bidding conducted by National Thermal Power Corporation (NTPC).
5. Under this scenario, while government achieves lower subsidy in fertiliser sector, it can also completely protect its profit share by maintaining the valuation price at USD 4.20 per mmBtu.
6. While the APM price of the gas is USD 2 per mmBtu, the selling price of the contractor is USD 4.2 per mmBtu, which is at a premium of more than 100 per cent over APM price.
Price formula
7. While approving the RIL’s price formula, the empowered group of ministers (EGOM) has categorically stated and I quote – “The decisions taken in this EGOM meeting will be without prejudice to the NTPC vs RIL and RNRL vs RIL cases which are separately subjudice”.
8. While this formula is not applicable to us, we would like to make few comments:
a. The formula is engineered by RIL and had no prior approval of Oil Ministry.
b. The process was rigged by inviting bids from select and stranded customers.
c. According to the RIL’s formula, as the crude price change from USD 25 to USD 26 per bbl (a four per cent increase), the price of gas increases by USD 1 per mmBtu which is an astronomic increase of 40 per cent.
d. Even 50 per cent decline in crude prices results in only 10 per cent decline in gas prices.
e. Further, though the international crude prices have come down by over 55 per cent and gas prices by over 75 per cent, the price of RIL gas during the same period has gone by over 20 per cent in Rupee terms as the price is denominated in USD for domestic fuel.
I would also like to take this opportunity to bring out certain aspects from various Government Reports:
Cabinet Secretary Report: August 2007
1. The report concludes - “Prima facie, the formula and process appears to suffer from several infirmities in respect of the formula employed and the bidding process.”
Other observations in the Cabinet Secretary Report
2. “Most of the price is pre-fixed and not affected by the outcome of bidding.”
3. “The proposed gas sale by RIL creates an artificial captive market of consumers with stranded assets. Hence, the price can not be considered as market discovered price.”
4. “The process can not be considered arms length because of multiple buyer and single seller”
Prime Minister’s Economic Advisory Council’s Report : August 2007
1. The report concludes - “Take immediate action to invite fresh bids in a transparent and well publicised manner for all parties in a position to lift gas so as to discover the true arms length competitive price for the gas.”
Other observations in the PM’s EAC Report:
1. “A sensitivity analysis of the formula indicates that it virtually ensures RIL a fixed price in excess of $40/bbl. Since oil prices are expected to remain hard, the formula assures a price of $4.24/mmBtu at all times to contractor.”
2. “It is undoubtedly anomalous that upstream pricing is market related while downstream pricing of major bulk consumers of gas is administered and regulated. Market linked prices may therefore end up increasing the burden of government subsidies in the fertiliser and power sector.”
Availability of gas
1. Honourable Petroleum Minister on Monday, (August 3, 2009), made a statement on the floor of the house that the gas production from KG D6 is 31 MMSCMD. But on August 6, ie, within four days, the Petroleum Minister made a statement that the production is 35 MMSCMD.
2. This clearly confirms our view that the contractor is hoarding the gas and only public scrutiny and comments are succeeding in putting pressure on the contractor to increase the production.
3. Honourable Minister said, “I would like to inform the august house that the scenario of natural gas in the country has undergone a change for the better.” This reaffirms that scarcity is a thing of the past and in the future there would only be gas surpluses.
Pricing of gas
4. While the Honourable minister stated that at the current gas price of USD 4.2 per mmBtu, there would be annual savings in subsidy on fertilisers of Rs 3000 crore. However, this subsidy savings could be substantially higher at more than Rs 5000 crore if the gas was priced at USD 2.34 per mmBtu as quoted by RIL and finalised through an international competitive bidding conducted by National Thermal Power Corporation (NTPC).
5. Under this scenario, while government achieves lower subsidy in fertiliser sector, it can also completely protect its profit share by maintaining the valuation price at USD 4.20 per mmBtu.
6. While the APM price of the gas is USD 2 per mmBtu, the selling price of the contractor is USD 4.2 per mmBtu, which is at a premium of more than 100 per cent over APM price.
Price formula
7. While approving the RIL’s price formula, the empowered group of ministers (EGOM) has categorically stated and I quote – “The decisions taken in this EGOM meeting will be without prejudice to the NTPC vs RIL and RNRL vs RIL cases which are separately subjudice”.
8. While this formula is not applicable to us, we would like to make few comments:
a. The formula is engineered by RIL and had no prior approval of Oil Ministry.
b. The process was rigged by inviting bids from select and stranded customers.
c. According to the RIL’s formula, as the crude price change from USD 25 to USD 26 per bbl (a four per cent increase), the price of gas increases by USD 1 per mmBtu which is an astronomic increase of 40 per cent.
d. Even 50 per cent decline in crude prices results in only 10 per cent decline in gas prices.
e. Further, though the international crude prices have come down by over 55 per cent and gas prices by over 75 per cent, the price of RIL gas during the same period has gone by over 20 per cent in Rupee terms as the price is denominated in USD for domestic fuel.
I would also like to take this opportunity to bring out certain aspects from various Government Reports:
Cabinet Secretary Report: August 2007
1. The report concludes - “Prima facie, the formula and process appears to suffer from several infirmities in respect of the formula employed and the bidding process.”
Other observations in the Cabinet Secretary Report
2. “Most of the price is pre-fixed and not affected by the outcome of bidding.”
3. “The proposed gas sale by RIL creates an artificial captive market of consumers with stranded assets. Hence, the price can not be considered as market discovered price.”
4. “The process can not be considered arms length because of multiple buyer and single seller”
Prime Minister’s Economic Advisory Council’s Report : August 2007
1. The report concludes - “Take immediate action to invite fresh bids in a transparent and well publicised manner for all parties in a position to lift gas so as to discover the true arms length competitive price for the gas.”
Other observations in the PM’s EAC Report:
1. “A sensitivity analysis of the formula indicates that it virtually ensures RIL a fixed price in excess of $40/bbl. Since oil prices are expected to remain hard, the formula assures a price of $4.24/mmBtu at all times to contractor.”
2. “It is undoubtedly anomalous that upstream pricing is market related while downstream pricing of major bulk consumers of gas is administered and regulated. Market linked prices may therefore end up increasing the burden of government subsidies in the fertiliser and power sector.”
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