Wednesday, July 12 2006 18:25 Hrs (IST) - World Time -

New Delhi: The petroleum ministry may be maintaining a distance while Reliance Industries Ltd (RIL) negotiates the sale of its gas from Krishna-Godavri basin (D6 block), expected to be available from July 2008, but it is clearly looking for good returns.

While the ministry doesn't plan to interfere in RIL's negotiations with Anil Ambani's Reliance Natural Resources Ltd (RNRL) and the state-owned power major NTPC Ltd., the final sale price of gas would have to be favourable to all stakeholders, including the government.

"The deal cannot be at a loss to any party. It has to be decided in the interest of all parties at an arms length, and the government is a party," a senior petroleum ministry official told sources.

The government gets its revenues as royalty and a defined share of profit of petroleum/gas after recovery of the investments made by the exploration company.

The lower the gas price, the longer it will take for the government to start getting returns from the gas sale the production sharing contract (PSC) defines that in the initial phase 90 percent of the revenue would be adjusted against RIL's investment in exploration in the offshore block.

As per the PSC, the government share in profit petroleum will increase to over 70 percent once RIL recovered its investment plus agreed returns.

With estimated in-place reserves of 11 trillion cubic feet in block D6, RIL is expected to produce around 40 million standard cubic metres per day (MMSCMD) natural gas from the offshore block, which was the biggest gas find of 2002.

Of the total production, 28 MMSCMD has been earmarked for RNRL and remaining 12 MMSCMD for NTPC.

Reacting to reports that Reliance Industries had finalised the gas sale deal at $2.34 per million British thermal unit (mbtu), the official said commercial gas from joint venture blocks was selling at $4.75 per mbtu. So, the price could not be lowered to an extent that government's share of profit petroleum and royalty gets delayed.

"Whatever price RIL sells at, we are not going to lose anything. We will adopt an arms length approach and seek returns on competitive price for valuation of our share," the official said.

The ministry has been maintaining a hands off position even in the matter of NTPC Ltd despite requests from the power ministry to intervene and ensure that RIL keeps its commitment of supplies below $3 per mbtu as per the original bid they had submitted.

Stating that the government is not a party to the original agreements entered into by RIL with either NTPC or RNRL, which is also planning to use the gas for power generation, officials said that with global gas prices at all time high it did not make sense to sell at subsidised rates from exploration blocks given on competitive terms.

Official sources pointed out that except for state-owned Oil and Natural Gas Corporation (ONGC) operated blocks, state-owned GAIL (India) Ltd was buying gas at commercial rates.

From the southern field Ravva, it was getting gas at $3.50 per mbtu, while from Panna-Mukta-Tapti field, where RIL is a partner, it was getting gas at $4.75 per mbtu. "Irrespective of what cost RIL sells gas, the government's share in gas (profit petroleum) and royalty will be computed at competitive rates. We are working on broad guidelines on pricing front and these will be in place shortly," the official said.