RIL prima-facie not complied with CBM policy norm: Oil Ministry

NEW DELHI: Reliance Industries (RIL) has prima-facie not complied with one clause of the government’s coal bed methane (CBM) marketing policy because it sold the gas it produced to its own unit after participating in auctions, the oil ministry has found in its preliminary assessment.

RIL said it has abided by CBM pricing policy’s stated objective of discovering the best possible price that maximises state revenue and royalty, which was achieved by its participation in the transparent auctions conducted by CRISIL Officials say the policy allows sale of CBM to an affiliate only if another buyer is not found but RIL said it acted in line with the policy and has regularly informed the government about its actions.

“The stated objective of the CBM policy is that best possible price is realised, to the benefit of all parties to the CBM contract, without any restrictive commercial practices. Accordingly, RIL has followed fully transparent and competitive open bidding process in line with the CBM pricing policy and provisions of the CBM contract and ensured that the best possible CBM price is realised to the benefit of all parties to the CBM contract,” it said in an emailed response to ET’s queries. It said the CBM price discovered in the auction will also maximize royalty and profit-linked payments to the government under the CBM contract.

RIL had won the auction against several other bidders. These were: GAIL India, GMR Rajahmundry Energy, GMR Vemagiri Power, GAIL Gas, Gujarat State Petroleum Corp (GSPC), Piramal Glass and Gold Plus Glass Industry. RIL began commercial production of CBM shortly after the government unveiled a new policy in April to give marketing freedom to operators. It has since conducted three auctions to sell its output up to March 2021 and in all three ended up being the top bidder and the buyer of all gas on offer.

“There is a prima facie violation of the CBM policy. The policy has clearly described the circumstances in which the contractor can sell CBM to an affiliate. But by bidding in the auction, along with other potential buyers, RIL has not complied with the policy,” a source with direct knowledge of the matter said.

“Sale of CBM to any affiliate of the contractor is permitted, in the event the contractor cannot identify any buyer following the procedure as stipulated in para 1.1,” the para 1.5 of the CBM policy says. The para 1.1 referred to here says, “It has been decided to provide marketing and pricing freedom to the contractors of CBM blocks to sell the CBM at arm’s length price in the domestic market. While discovering the market price for arm’s length sales, the contractor has to ensure a fully transparent and competitive process for sale of CBM with the objective that the best possible price is realised, to the benefit of all parties to the contract, without any restrictive commercial practices…”

Officials say preliminary examination shows that RIL should have looked for other buyers before considering the option of buying its own gas. The oil ministry didn’t respond to ET’s email queries. A former secretary to the government, EAS Sarma has also objected to RIL’s participation in the auction for its own CBM. In a letter to cabinet secretary PK Sinha, Sarma alleged that this had “vitiated” the auction and urged him to examine the matter.

Sarma is among the few prominent citizens whose complaint prompted Delhi government’s anti-corruption branch to file an FIR in 2014 naming RIL Chairman Mukesh Ambani, and former oil ministers for allegedly colluding to raise natural gas prices. The oil ministry may seek the views of the company about the sale. If the ministry finds the process faulty, the company may have to re-auction its produce according to the policy.

If RIL does not participate in the auction, the chances of it using its own gas will get slimmer as all its auctions have attracted multiple bidders. RIL is currently producing 0.72 million metric standard cubic metres a day of CBM from its Madhya Pradesh fields. During the July-September quarter, it produced 1.63 billion cubic feet (BCF) of gas as compared to 0.30 BCF in the April-June quarter.

The price discovered for the period up to September 2017 was $4.50 /million metric British thermal unit. Its first two auctions were for shorter periods but the latest auction in September was for sale of gas till March 2021, in which RIL quoted $1.29 per unit higher price than nearest competitor Piramal Glass.