Escrow account to save BP & Niko in KG-D6

Together, they have 40% share in gas output from the field

UK’s BP and Canada’s Niko Resources, which together hold a 40 per cent share in the gas output from the KG-D6 field, might get to charge higher prices if a government plan to set up an escrow account for them works out.

The Mukesh Ambani-controlled Reliance Industries, majority shareholder in the field, has been allowed to charge more for gas.

But the petroleum ministry was against giving BP and Niko Resources the same leeway because they were not party to Reliance’s arbitration proceedings against the government over low gas yield.

Output from the the KG-D6 block over the last four years is around 154 million standard cubic metres a day (mscmd) short of initial projections.

PRICE PARLEYS

• The Mukesh Ambani-controlled Reliance Industries, majority shareholder in the KG-D6 field, has been allowed to charge more for gas
• Output from the the KG-D6 block over the last four years is around 154 million standard cubic metres per day (mscmd) short of initial projections
• The Cabinet had last December okayed a higher gas price for Reliance
• The price of gas is set to double to $8.4 a million British thermal units on April 1

The Cabinet had last December okayed a higher gas price for Reliance provided the company furnished a bank guarantee until arbitration over the shortfall in the field’s output was over. The price of gas is set to double to $8.4 a million British thermal units (mBtu) on April 1 from the current $4.2, based on a formula suggested by C Rangarajan, chairman of the Prime Minister’s Economic Advisory Council.

“Reliance will issue a bank guarantee for its 60 per cent share, and there is a proposal to put the remaining 40 per cent into an escrow account. A decision will be taken next week,” a petroleum ministry official said.

Reliance mooted the idea of a bank guarantee on October 31 in a letter to the ministry.

“The contractor, pending resolution of the dispute, is willing to secure, if necessary, by a bank guarantee in favour of the Government of India, the differential between the existing price and the revised price realised by the contractor for gas saved and sold from D1-D3 after April 1, 2014,” it said.

The guarantee is for the amount Reliance will earn from the new gas price. The government can encash it if it is proved Reliance deliberately suppressed gas production at the

D-1 and D3 fields in the KG-D6 block since 2010-11. The government has fined Reliance $1.797 billion for the shortfall. The dispute could take a while to resolve because arbitration is stuck over the appointment of a third judge. The two parties have agreed on former chief justices S P Bharucha and V N Khare but are yet to decide on a third member.

“A call on whether BP and Niko can become party to the arbitration process can also be taken by the Supreme Court,” the official added.