Oil and Natural Gas Corporation said on Tuesday it was making an annual loss of Rs 700 crore (Rs 7 billion) on sale of gas at administered prices even as Reliance Industries stated it followed a transparent process to discover the price of gas to be produced from KG-D6 block.
ONGC Chairman R S Sharma told a committee of secretaries, set up to look into the pricing of gas from RIL's KG-D6 block off the east coast, that the present price of Rs 3.2 per cubic meters that it gets for gas produced from its own fields was not sustainable.
The hike suggested by Tariff Commission to Rs 3.6 per cubic meters would only help ONGC break-even on sale of gas produced from old fields, sources said.
For gas from new fields, like the deepsea field of RIL, Sharma sought prices close to the one it was getting for selling gas from jointly-operated Tapti gas fields ($4.75 per million British thermal unit).
Sources said Sharma told the panel that ONGC's $2-3 billion investment in bringing to production small and marginal gas fields was on the premise that it would get market price and the investments would become infructous if government regulates the price.
Sources also said RIL chairman Mukesh Ambani told the CoS that his company followed a very transparent process to arrive at a price of $4.33 per mBtu for KG-D6 gas. Power generation at this price would be less than Rs 2.5 a unit and would help save Rs 6,400 crore (Rs 64 billion) in fertiliser subsidy annually.
RIL presented it invited bids from all private and public sector power and fertiliser units having consumption of over one million standard cubic meters per day and falling on route of the pipeline it plans to lay for transporting gas from Andhra Pradesh to Gujarat, the sources said.
Sources said RIL told the CoS that based on transparent bids, the maximum price of gas (at an exchange rate of $1 to Rs 45) came to $4.33 per mBtu. This is lower than the average price of $4.57 per mBtu being charged for 20.4 million standard cubic meters per day of gas sold by other private firms' operated fields.
RIL did not invite bids from major consumers like ceramic industry and oil refineries as they could have bid $7 per mBtu to save on the $15 per mBtu price paid for industrial LPG and $11 per mBtu for fuel oil.
The company said if its gas replaced just the 14 mmscmd equivalent naphtha (currently priced at $16 per mBtu) and 3 mmscmd of imported LNG (costing $7.5 per mBtu) being used in the fertilizer units, an annual saving of Rs 6,400 crore (Rs 64 billion) in fertiliser subsidy would accrue.
The CoS, after listening to arguments from the consuming ministeries of power and fertilizer who sought gas price regulation to keep electricity and fertilizer cost low, had invited producers RIL and ONGC to present their case.
Sources said RIL told the CoS that the government will get $4.6 billion in royalty, profit share and corporate tax if RIL gas is priced at current subsidised rate of $2.50 per mBtu but this jumps to $14.5 billion if gas is sold at a market-determined price of $4.5 per mBtu.
RIL, which plans to begin production from KG-D6 block from July 2008, stands to get $6.6 billion in revenues at $2.5 per mBtu gas price, almost all of which will go into recovering $5.2-billion investment being made for developing the field and the project financing cost.
At $4.5 per mBtu, RIL will get $14.9 billion in revenues, the sources said.