New Delhi, July 22: Coal bed methane producers will be allowed to freely market the gas, expected to emerge as a cost-effective and clean fuel for power and fertiliser plants. Prices, however, will be administered by the Centre.

Union minister for petroleum and natural gas Janeshwar Mishra told newspersons on Tuesday that both Indian and foreign companies would be allowed 100 per cent participating interest in the ventures. Petroleum secretary Vijay J Kelkar said exploiting 20 million cubic metres of the gas will require an investment of between $ 0.5 million and $ 1 million.

Exploitation of the estimated 1000 billion cubic metres of coal bed methane will be guided by the Oilfields Act and the Petroleum and Natural Gas Rules. Mishra said that since tapping the fuel would require coordinating with coal producers, a close interaction would be maintained with the coal ministry as well.

He said the old feud between the two ministries over who should allocate blocks for the gas had been resolved once and for all. Since coal bed methane was essentially methane gas, its exploitation would be governed by oil and natural gas production rules, he said.

Identification of the coal bed methane blocks, however, would be in consultation with the ministry of coal, he said, adding that a memorandum of understanding (MoU) to that effect would shortly be signed between the two ministries.

Coal bed methane blocks would be offered for exploration through a ``totally transparent, global, competitive, bidding system,'' Mishra said. A committee of secretaries, comprising the secretaries for petroleum and natural gas, coal, finance and law will consider proposals for exploiting such blocks and recommend their choices to the Cabinet Committee on Economic Affairs (CCEA).

The contractual terms for exploiting the gas will include a base rate royalty of 10 per cent of the free market value, which will be paid to the state government in keeping with the Petroleum and Natural Gas (P & NG Rules). Among the ``biddable items'' will be production linked payment to the Centre.

*The bids for the production-linked-payment (PLP) will be invited on pre-specified slabs of rates of production. The higher rates of the PLP will only be applicable in higher slabs.

*Indian companies bidding for coal bed methane blocks will have to pay a commercial discovery bonus of $ 0.3 million or its equivalent in Indian rupees.

*Contractors will be exempted from paying customs duty on imported goods for coal bed methane projects. They will, however, have to pay income tax, in keeping with the Indian Income Tax Act.

*The duration of the contracts for exploiting coal bed methane will be 38 years, except for frontier areas, when it will be for 40 years. The petroleum ministry will define such frontier areas, keeping in mind lack of infrastructure and the technical complexity required for exploiting the gas.

*The duration of the contract will be divided into four phases. The first phase of three years will be for exploration. The following five to seven year-phase will be for pilot assessment of commercial production and a market for the gas.

The third phase of five years will be for developing the block and the final phase of 24 years will be set aside for producing the gas.

*Companies bidding for such contracts will have a walk-out option at the end of the first and second phase. They will also be asked to relinquish a certain part of the area granted for exploration at the end of the second phase and all the area that is not being used to produce the gas at the end of the third phase of the contract.

*Contractors will be allowed to freely market the gas in the domestic market.

*Both foreign and Indian companies will be allowed 100 per cent participating interest.

The petroleum and natural gas ministry is expected to shortly draw up a model contract for bidders for coal bed methane blocks. Mishra said he expected blocks to be allocated by 2003.

The three proposals for exploiting the gas already approved by the Foreign Investment Promotion Board (FIPB) of Amoco, Enron and Wood McKinsey will be examined `separately' Mishra said, in consultation with the ministry of coal.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.