BackOil ministry to move cabinet note disallowing new gas prices for RIL
Ministry wants to bar RIL from charging higher price while compensating customers for KG basin supply shortfall
Premium(The contract in question concerns RIL’s D1 and D3 discoveries in the KG basin that are part of the D6 field.)
New Delhi: The petroleum ministry is moving a cabinet note seeking to bar Mukesh Ambani’s Reliance Industries Ltd (RIL) from charging a higher price while compensating customers for the shortfall in gas supply from its field in the Krishna-Godavari (KG) basin until it can be ascertained that the deficit was the result of geological reasons.
“The inter-ministerial inputs have been received. The note for issuing policy guidelines for notifying the new price will be moved shortly, stating that the new prices for RIL’s production from D1 and D3 discoveries be awaited till the dispute is settled," said a petroleum ministry official requesting anonymity. “A decision is expected after two weeks."
The contract in question concerns RIL’s D1 and D3 discoveries in the KG basin that are part of the D6 field. The government in June agreed to increase the price at which gas will be sold to producers of power, fertilizers, minerals and steel, benefiting gas producers including RIL and state-run Oil and Natural Gas Corp. Ltd. The price increase will be effective from 1 April 2014.
Production from these fields has been far below estimates, hurting customers to which RIL had committed supplies in the fuel-starved country. RIL had agreed to supply the gas at a price of $4.2 per million British thermal units (mmBtu). The new price is expected to be around $6.83 per mmBtu.
In response to a question about the cabinet’s decision being contingent upon the findings of the reason behind the shortfall, petroleum minister M. Veerappa Moily said on Thursday: “The cabinet note doesn’t depend upon that. It is being worked out. What should be the way forward, we are resolving it. Then the question is even if it goes to the cabinet, that (the decision) is always subject to the findings. The note is in the process."
An earlier draft note prepared by the petroleum ministry for consideration by the cabinet committee on economic affairs proposed that “the natural gas pricing guidelines, 2013, shall not apply to gas production from D1 and D3 discoveries till such time the government decides that shortfall quantity is due to geological reasons and not due to default on RIL’s part in failing to fulfil the work programme commitments..."
The finance ministry has raised concerns about the absence of a ceiling in the case of unreasonable upswing in prices and including spot contracts for computing final gas prices. The Economic Times newspaper on Friday reported that the finance ministry has sought a cap on gas prices, asserting the state’s power to eject RIL from the D6 block.
“The finance ministry has raised some issues. Our view is that while there is not an absolute cap, the formula provides for a cap to automatically kick in. Also, spot contracts bring down the prices as it is more reflective of the prices as compared to the term contracts," said the petroleum ministry official cited above.
A spokesperson for RIL declined comment, although the company’s articulated position has been that neither a production-sharing contract of the sort it entered into with the government nor the field development plan suggests that the shortfall can be considered a breach for which penalties can be levied.
The finance ministry declined to comment .
The finance ministry and the parliamentary standing committee on finance headed by Yashwant Sinha of the opposition Bharatiya Janata Party had raised the issue of getting RIL to supply, after 1 April 2014, the gas it was supposed to supply till then but hadn’t, at the old rate.
The ministry and the committee recommended that the government ensure that RIL delivers the 1.196 trillion cubic feet shortfall it has run up at the old price of $4.2 per mmBtu, rather than the new price.
The government’s decision to approve the price increase has become controversial, and the Supreme Court is hearing a public interest litigation on it.
Asit Ranjan Mishra contributed to this story.
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