Reliance Gas Pricing Formula - Interesting !

Reliance Industries has been in news, recently - which I am sure is nothing new - for the impassé over the pricing of the gas which will be pumped from the Krishna-Godavari basin. For sometime I maintained a very academic interest in this issue, thinking it to be another case of government needing to maintain a pro-poor and pro-middle-class image and also pacify the left parties. An article in Business Standard,'Gas in pricing remains' by Sunil Jain, though, made an interesting read and brought home the fact that the Reliance-Centre talks and other similar negotiations are not just a question of "who blinks first". Hardcore numbers are involved. Let me try and elucidate this in bullet points.

i) In April 07, Reliance selected 10 potential buyers and asked them to bid
ii) These potential, enlisted, buyers had to submit their bids based on a formula provided to them by Reliance
iii) Formula consisted of three parts
a) A fixed component
b) A component based on the prevailing price of crude oil
c) A component 'c', which was biddable
iv) Oil and Gas, being much in demand, c was bound to be relatively high, especially jacked up by companies for whom assured supply of gas was crucial for their existence.
v) What is wrong or rather out of place here is the listing of bidders by Reliance itself and the opaque manner of evaluating bids.
vi) The EGoM (Empowered Group of Ministers) after all the negotiations did not remove the 'c' component. They just the value changed to zero.
vii) This implies that further down the road, the value of 'c' can still be resurrected.

Note: Do read the article for more insight.

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