"All gas sales from blocks awarded under New Exploration Licensing Policy will have to be done through competitive bidding route. For such purposes, the government will prescribe a minimum floor price (to protect its revenues) and a ceiling price (to protect consumer interest)," an oil ministry official said.
The minimum floor price is likely to be $3.50-4 per million British thermal unit (mBtu) while the ceiling is likely to be around $6 per mBtu.
The new policy is being evolved after the ministry rejected a proposal of Mukesh Ambani-run Reliance Industries Ltd, the owner of 50 trillion cubic feet KG-D6 field, to an Anil Ambani Group company on grounds that the price of $2.34 per mBtu was not arrived at on an arms-length basis.
The official said gas producers were free to enter into long term sales agreements, but would have to discover market price every three years. "The government is entitled to a certain percentage of the production from fields. Since this share, known as profit petroleum, is taken in cash and not in kind (physical gas delivery), it is directly proportional to the price. A low price will impact government revenues," he said.
The new policy would have an impact on not only the RIL-RNRL deal but also the RIL-NTPC gas agreement, both of which are in courts.
The official said the government would have lost about $7.5 billion (Rs 34,500 crore) in revenues if it had allowed Mukesh Ambani-managed Reliance Industries to sell natural gas to brother Anil's group company at a price not discovered through competitive bidding.
At $2.34 per mBtu, the price at which RIL proposed to sell 28 million standard cubic meters per day of gas to RNRL, the government would have received $1.105 billion in profit petroleum and royalties over the 17-year life of the gas field in Krishna-Godavari basin.
But, at $4.75 per mBtu, the price at which RIL currently sells gas from Panna/Mukta and Tapti fields, public exchequer would have got $8.55 billion in royalties and profit petroleum (government's share in output), he said.
RIL also previously bid to sell gas to NTPC Ltd at a delivered price of $3.18 per mBtu, but has not performed the contract. Both NTPC and RNRL have approached the Bombay High Court, seeking execution of contract with RIL.
