The Telegraph
Thursday , June 19 , 2014
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Move to clear air on gas price

Mumbai, June 18: Reliance Industries Ltd (RIL) has once again rubbished the charge that it stands to make windfall profits from the gas it produces from the Krishna-Godavari (KG) basin once a new gas pricing regime kicks in.

Last year, the Rangarajan committee tweaked the gas pricing formula that would potentially price the gas produced from offshore gas fields in the country at around $8.40 per million British thermal unit (mBtu), stirring controversy over the formula itself and whom it was intended to benefit.

The UPA government accepted the Rangarajan formula, which was supposed to come into effect from April 1. However, the election commission forced the government to stall the implementation of the formula until after the elections in mid-May.

Since then, the Narendra Modi government has indicated that it intends to review the Rangarajan formula, sparking uncertainty over the new gas pricing regime.

The latest RIL defence against what it terms as myths and unfounded charges is designed to build public opinion against an increasingly strident campaign against the rise in gas prices.

“The motivated campaign against the revised gas prices is based on the absurd claim that RIL will be the biggest beneficiary,” RIL said in its 28-page document titled “India has never been here before: Facts you didn’t know about KG-D6”.

The note says that the allegation that the price revision will benefit RIL alone is a huge exaggeration. “KG-D6 produces a bare 15 per cent of all domestic gas. The PSUs, which produce 75 per cent, will be the major beneficiaries,” the note adds.

RIL has also put out its own estimates of how the price rise will impact government revenues. “The price rise will increase the revenues earned on the country’s entire gas production by Rs 26,000 crore. Of this increase Rs 12,000 crore comes back to the government as royalty, profit petroleum, taxes, and dividend. The share of RIL and its partners is only Rs 3000 crore (not Rs 54,500 crore as is being alleged by vested interests to create controversy).”

It claims that ONGC’s revenue increase as a result of the gas price hike will be Rs 16,000 crore.

It also tries to debunk some of the false myths that have been spread to create fear in the minds of the people that the gas price rise will have an impact on the price of LPG cylinders.

“What would $8/mmBtu of KG-D6 gas translate to on a 14.2 kg cooking gas cylinder? Nothing. No impact at all. LPG is a mixture of Butane (C4 fraction of hydrocarbon) and Propane (C3). KG-D6 gas is pure Methane (99 per cent Methane i.e. C1 fraction). So, LPG cannot be extracted from KG-D6 gas,” the note argues.

It says that RIL has invested $12.6 billion in exploration, development and production and remains the largest investor under Nelp.

The D1-D3 fields in the KG basin are the first and only deep water producing fields in India and remain among the most complex reservoirs in the world. Other discoveries in the same block such as the R Series, Satellites and MJ1 are pending development. D1-D3 production will vary but is not expected to increase substantially. “Any increase in production will not come from D1-D3 but through development of the new discoveries in KG-D6 block. The earliest this could happen is 2017-18,” the note says.

It also tries to build a strong case for the gas price hike. The note says that in the last 10 years, the prices of other commodities, offshore services, and consumer items have increased disproportionately compared to the revised gas price. “Crude oil prices have moved from around $30 per barrel to over $100/Bbl and imported LNG from around $4/mmBtu to over $14/mmBtu,” the note adds.