New Delhi: After agreeing to temporarily sell gas to urea plants on the old terms, Reliance Industries Ltd (RIL) has told its sole customers the new formula, which nearly doubles the price of the fuel, will apply from 1 April.
Last week, RIL and urea companies failed to settle the key terms of gas supply from 1 April on expiry of the five-year contracts that priced gas from the eastern offshore KG-D6 fields at $4.205 per million British thermal unit (mBtu). While RIL agreed to continue supplies in the interim period, the dispute pertained to the rate at which consumers should provide payment guarantees—the expired price or $8.34, which would have been applicable from 1 April had the Election Commission not postponed implementation of the Rangarajan Committee formula till completion of the general election.
RIL on Tuesday wrote to fertilizer firms saying the gas price of $4.205 per mBtu was valid only till 31 March. “By a notification dated January 10, 2014, published on the Gazette of India on January 17, 2014, the Government of India has notified the (new) gas price formula. Clearly, with effect from April 1, 2014, a revised price is applicable to all gas supplied by us and accepted by you,” it wrote.
Stating that the terms and conditions under which gas is sold was a matter of bilateral discussion, it said fertilizer companies will have to provide security for payment for the differential between the previous and new rates.
The 16 fertilizer firms, which buy some 13 million standard cu. m a day of KG-D6 gas, had in 2009 provided financial securities to guarantee payment at $4.205 per mBtu. Now, RIL wants them to provide additional letters of credits for another $4.1 per mBtu.
“These (terms and conditions) include your providing us the security for payment for the differential between the previous price which has come to an end on March 31, 2014, and the price applicable effective April 1, 2014,” RIL wrote.
The government had fixed $4.205 per mBtu as the sale price for KG-D6 gas for the first five years. KG-D6 started output in April 2009 and the price expired on 31 March. The new price formulation was approved by the cabinet in December and notified on 10 January, but the specific rate based on the formula was not notified before general election was announced.
The oil ministry approached the Election Commission for approval to announce the price, but the poll watchdog asked the government to hold the rate till mid-May. RIL in the 8 April letter also contested the “agreement” on the terms of supplies in the interim, saying the marathon discussions held on March 31 were “inconclusive”.
An RIL spokesperson told Mint that it did not want to comment on the story.