Niko slams govt 'cartel', increases Surat gas price

Says price could be raised under contract if approval didn't come in 120 days

Niko Resources has taken on the government, which is not allowing any domestic gas producer a price increase, by not only selling gas at nearly $7 a million cubic feet but also labelling government price control as cartelisation.

The Canada-based company is doing so as the government is sitting on the approval for its gas price formula. An interpretation of a clause in the production-sharing contract (PSC) allowed it to go ahead with a higher price if the approval did not come within 120 days, said a Niko Resources executive, who did not wish to be identified.

The issue has sent the ministry of petroleum and natural gas in a tizzy. An official of the rank of director was asked to give an explanation on the pricing of Niko’s gas, produced from a block in Surat called CB-ONN-2000/2, though the matter preceded his taking office. “The government, it seems, is unhappy about how Niko Resources is selling gas from its Surat block at around $7-7.17 per million cubic feet. It has issued showcause notices to its officers questioning this. We, however, sell at an arm’s length price. The government wants you to sell at a price approved by it; this, we think, amounts to cartelisation,” said the executive.

STEPPING ON THE GAS

• Niko bagged the Surat block in July 2001 and began production in 2003
• It sent an arm’s length pricing formula to the government for approval
• There was no reply from the government; Niko began selling at $3.90/mBtu
• All production from the block is sold to Gujarat Gas Company 
• Gas from the field will be exhausted in about two years
• At present, the production is hardly 100,000 cubic metres per day
• RIL sells its KG-D6 gas at $4.20 per mBtu. It has sought revision of prices
• Article 21.7 of the PSC says the formula or basis for sale price will be approved by the govt prior to the sale of gas

An email sent to the company’s Canada office remained unanswered till the time of going to press. The office landline phone answering machine said the office was closed.

Niko says it wrote to the government twice but there was no response. “We decided not to chase the government to approve our price,” he added. Niko’s move on the Surat gas is in contrast with what it is experiencing as a 10 per cent partner in Reliance Industries Ltd’s D6 block. There the two companies, along with BP, have been seeking a price revision.

RIL sells its KG-D6 gas at $4.20 per mBtu (million British thermal unit). Stuck with a $4.2 per mBtu price for its natural gas till 2014, RIL has sought from the government an import-parity price for the sale of gas from its D6 field in the Krishna-Godavari basin (KG-D6).

One mBtu is equivalent to one million cubic feet, plus or minus up to 20 per cent, depending on the composition and heating value of the gas in question.

Niko began selling gas from the block in 2003 at $3.90 per million cubic feet. Gas from the field will be exhausted in about two years. “At present, we are hardly producing 100,000 cubic metres per day. There is no scope for increasing production from this block,” the Niko executive added. He smelled a conspiracy in the issue being raked up when production was dwindling.

Located onshore in Gujarat, Niko bagged the Surat block in July 2001. It holds the entire stake in the block, and is the operator with a development area of 24 sq km adjacent to the Hazira Field in Gujarat.

Natural gas produced from the Surat block is transferred to the customer via Niko’s six-inch pipeline to the customer’s facility. The company has a gas plant at the Surat block. The entire production from the block is sold to Gujarat Gas Company Ltd, a BG India subsidiary.