IN LINE OF FIRE

Calcutta, July 1: Andhra Pradesh chief minister Y.S. Rajasekhara Reddy has questioned the method used by Reliance Industries (RIL) to determine the price of gas from the Krishna-Godavari (KG) basin in a letter to Prime Minister Manmohan Singh. This is his third letter to Singh in less than two weeks.

Andhra Pradesh will be the landfall point of the gas to be produced from 2008.

A high gas price of $4.79 per mmbtu will hit the state as it expects to generate cheap power from it.

The letter, sent on Friday, stated that RIL’s price discovery method was non-transparent, amounting to an auction of the scarce commodity.

Reddy’s letter came a day after his meeting with Anil Ambani, chairman of Anil Dhirubhai Ambani Group, on natural gas pricing.

According to an interim order of Bombay High Court, Mukesh Ambani-controlled RIL must sell the bulk of the gas from the KG basin to Anil’s Reliance Natural Resources Ltd (RNRL) and state-run NTPC.

Mukesh is believed to have proposed a power plant in Andhra Pradesh using the gas from RNRL’s quota.

RNRL is supposed to supply gas to Anil’s power project at Dadri in Uttar Pradesh. It had a contract with RIL to get the KG gas at $2.34 per mmbtu.

In his letter, Reddy referred to a recent Supreme Court order on the e-auction of coal where the apex court had struck down the process.

It said the price fixation of coal, which is in short supply, must be determined by public interest.

“The Supreme Court observation is relevant to the bid process initiated by RIL for gas pricing,” Reddy wrote in the letter.

The chief minister argued that RIL had selected five power companies in a non-transparent manner to submit bids, which later formed the basis for the price of $4.79 per mmbtu. Two of the five power companies — GVK Extension Project and Konaseema Gas Power Ltd — are located in Andhra Pradesh.

Reddy said the price quoted by GVK was not legally valid, while the Konaseema project was non-existent.

Thus, bids from these two companies could not be considered valid to determine the current market price of the KG gas, he said.

The chief minister wants an autonomous market regulator for gas pricing to be put in place to fix the price. At the peak production level, RIL expects to produce 80 million standard cubic metres of gas per day from the KG basin.