Companies like Reliance Industries [Get Quote], which plans to produce natural gas from KG basin from 2008, will have to invite bids from consumers to discover the price of output under a new exercise adopted by the government.

The ministry of petroleum and natural gas has accepted the recommendation of a committee that prescribed price discovery through competitive bidding, a ministry press release said.

The committee, headed by the ministry's joint secretary and financial advisor, was constituted to formulate transparent guidelines for approving natural gas price formula for giving government approval.

"Once a market-determined price has been discovered between the suppliers and customers through a transparent competitive bidding process, there should be no need for the government to interfere with the same," it said.

In cases where price is not determined through a transparent bidding process, it would be indexed to the most recently competitively determined price in the region. Reliance Industries is to being production of natural gas from the KG-DG block off the Andhra coast from July 2008 and has not yet firmed up the gas sale price.

These guidelines will now be the guiding principal for arriving at a price. The committee was formed after the government rejected Mukesh Ambani-run RIL's sale price of 2.34 dollars per million British thermal unit (mBtu) to a firm in his brother Anil's group as not being arrived at arms length basis and way short of market price.