Gas price issue: RIL to decide on merits of arbitration

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Reliance Industries Ltd (RIL) is perusing whether to withdraw a pending arbitration with the government on the gas price issue so that it can benefit from the higher prices.

The company's top management is understood to be looking into two divergent views of whether to drop the arbitration to gain from the near doubling of gas prices or carry on with the two-year-old case. "There is a view in favour of continuing with the case, while a second one favours dropping the arbitration. Both the views have been presented to the top management and the board will take a final call," said a senior executive close to the development. An e-mail sent to the firm remained unanswered.

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The Cabinet had decided in March a new liberal pricing policy would apply to a company only if it ended or withdrew disputes it had filed against the government on gas pricing.

Key RIL executives, including Executive Director P M S Prasad and President (E&P) Ajay Khandelwal, had met Oil Minister Dharmendra Pradhan early last month, fuelling speculation over whether the company has initiated talks with the government on withdrawing arbitration.

The previous government had in January 2014 notified domestic natural gas pricing guidelines that would have doubled the prices from the then prevailing $4.2 per million British thermal units (mBtu). However, an Election Commission diktat did not allow the implementation of the guidelines from April 1, 2014. In May 2014, RIL and its partners BP and Niko went to court against the government for not implementing the new price.

The National Democratic Alliance government came to power in May 2014 and deferred the revision of gas price. A new price of $5.6 per mBtu was implemented from November 2014. The government had in March this year launched crucial reforms for the oil and gas sector, based on which the Petroleum Planning and Analysis Cell of the oil ministry had announced a ceiling price of $6.61 per mBtu for gas from deep water, ultra-deepwater and high-pressure, high-temperature areas. This was more than double the current domestic gas price of $3.06 per mBtu.

A source close to RIL denied the firm discussed the issue of withdrawal with Pradhan in the April 5 meeting but asserted the company was pressing ahead with its development plan for the KG Basin project.

RIL had last month floated an expression of interest (EoI) to develop its oil and gas assets, including some of the discoveries in the KG-D6 block. Based on the bids, RIL plans to submit a revised field development plan to the government. The firm is also looking to place engineering, procurement, installation and commissioning contract for subsea facilities and pipelines for deepwater field development and offshore platform modification work. For KG-D6, the firm has invited an EoI for all operation and maintenance services, equipment and materials.