The oil ministry has forwarded the contentious issue of pricing methane gas produced from coal seams by Essar Oil and Reliance Industries to an empowered panel of secretaries after raising objections and holding back approvals for nine months. The companies had submitted pricing proposals after inviting bids from prospective customers to determine the market price for coal bed methane (CBM). The oil ministry said Essar violated the rule of dealing with potential customers on an arm’s-length basis while Reliance ignored the government’s gas utilisation policy. Reliance Industries has been involved in a standoff with the oil ministry for more than a year and has waited endlessly for government approvals for several proposals, and crucial meetings of the management committee for the KG-D6 block have been delayed. The ministry has also imposed a penalty of about $1 billion on Reliance. Delay Affecting Work at Block The oil ministry has blamed RIL for the sharp fall in gas output from the KG-D6 block and rejecting the company’s view that production dropped because of geological complexities. The ministry has also opposed RIL’s move to raise natural gas prices. “Now, the oil ministry has referred the matter to an empowered group of secretaries (ECS) without taking any stand,” a senior government official said, requesting anonymity. Government officials told ET the ministry has circulated a note to ECS members representing the law, finance and other ministries. The delay in securing approval for pricing has affected work at the coal block. “Till there is pricing clarity, it will be difficult for the company to commit more investments in its CBM acreage, especially as the company conducted a fair price discovery mechanism and only then arrived at the price of $13 (per unit). Obviously, further development and drilling work will also get impacted,” said a source close to Reliance Industries. Approval may take more time as government officials say the ECS’ recommendations would be referred to the Cabinet. Essar’s Raniganj block and RIL’s two blocks in Sohagpur in Madhya Pradesh together have the potential to produce about 6.5 million standard cubic meters per day gas. Commenting on the price discovery methodology of RIL, the oil ministry said in its note to the ECS: “The present proposal submitted by RIL for price discovery and supplying of natural gas … is against the gas utilisation policy approved by the EGoM and the order of the Supreme Court delivered on May 7, 2010, on RIL vs RNRL case”. The ministry said RIL had excluded priority sectors such as fertilizer and power units. “This will result in suppression of gas utilisation policy of the government of India by the price discovery process. Such subordination of government policy is not permissible as per the Supreme Court order,” the ministry said in the note. Meanwhile, Essar Oil has offered to invite fresh bids to determine the price of coal bed methane produced from its Raniganj block to address oil ministry’s doubts over the tendering process. Essar’s exercise to discover market price of CBM landed in controversy after the oil ministry apprehended that Matrix Holding Fertiliser Ltd’s bid did not meet the requirement of being at an “arm’s length”, oil ministry officials said. Essar later clarified that Matrix was not its associate company, officials said. The prospective buyers, including Gail India, had offered prices ranging between $4.2 and $14 per unit for CBM. The company is producing about 25,000 standard cubic meters per day of methane gas from 15-20 wells in Raniganj and sells to customers at an ad hoc price of $6.25 per unit.