CPI's Dasgupta questions $8.4 an mBtu gas price

Communist Party of India (CPI) leader Gurudas Dasgupta on Thursday again trained guns on the Centre for the gas price rise.
In a letter to Prime Minister Manmohan Singh, Dasgupta alleged the cost of production for Reliance Industries Ltd (RIL)’s KG-D6 block was just $ 2.74 a million British thermal unit (mBtu). He added the Rangarajan pricing formula would give them a windfall gain through a pricing of $8.4 an mBtu.
Dasgupta asked Singh to revisit the pricing of natural gas by the Rangarajan formula, applicable from April 2014. Citing petroleum ministry figures, Dasgupta said the ministry had admitted that after computing from the financial statement of RIL in 2011-12 on projected level of production, the cost of production, including levies, worked out to $2.74 an mBtu.“If the cost of production is only $2.74, how has Rangarajan come to the conclusion that it should be $8.4 per unit to be given to the contractor? Evidently, it is a case of lack of due diligence,” the letter said.
Earlier, Dasgupta had filed a public interest litigation regarding the decision on gas pricing at the apex court, on which the response from the petroleum ministry, RIL and minister M Veerappa Moily would be heard on September 6.

 http://www.business-standard.com/article/companies/cpi-s-dasgupta-questions-8-4-an-mbtu-gas-price-113082200883_1.html

GURUDAS DAS GUPTA's letter to the Prime Minister on Gas Pricing

My letter to the Prime Minister on Gas Pricing...
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22.08.2013
My dear Prime Minister,

We have been persistently raising the question of verifying the cost of production per unit in RIL KG-6 Basin, production of natural gas before deciding upon the process of pricing. No governmental agency has clarified this question to us. Even the Finance Secretary while deposing before the Standing Committee on Finance bluntly stated that evaluating the cost of production was not their job. Surprisingly nowhere the Rangarajan Committee speaks of the cost of production. Ultimately, the Ministry of Petroleum and Natural Gas replying to a question of the Standing Committee through O.M. No.-L-150-16/9/2013GP dated 2.8.2013 (copy attached) has officially admitted that after computing from the financial statement of the Company of 2011-12 on projected level of production, the cost of production, including the levies, works out to USD 2.74 MMBTU.

If the cost per unit is only USD 2.74, then how the Rangarajan Committee has come to the conclusion that it should be USD 8.4 per unit to be given to the contractor. Evidently it is a case of lack of due diligence. The next question that arises is how the Cabinet had approved the price almost four times the cost so hurriedly.

I fervently request you to revisit the question of pricing of natural gas to be given to RIL and clear the air of suspicion that the government had only acted to benefit the corporate giant undermining the national interest.

With kind regards,

Yours sincerely,

(GURUDAS DAS GUPTA)
Dr. Manmohan Singh,
Prime Minister of India,
New Delhi.

Encl: (iii) what has been the cost of production for RIL in KG-D6 block? Whether the Company had submitted any documentation in this regard to the Ministry?

Reply:
RIL has not submitted the document to the Ministry about cost of production in the block KG-DWN-98/3.

The cost of production for RIL in KG-D6 block in 2011-12 was USD 2.48MMBTU excluding levies and USD and USD 2.74MMBTU including levies. Figures are computed from financial statements 2011-12, based on projected levels of production.

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