RIL justifies marketing margin on gas

Two days after the Union power ministry said it did not approve of Mukesh Ambani’s Reliance Industries (RIL) charging marketing margin on the sale of gas from its KG-D6 facility, the latter has, in a letter to the former, justified the levy, saying it is essential to cover risks and costs incurred in marketing of the gas.

“The marketing margin being charged by RIL on sale of KG-D6 gas is fair and justified consideration for the risks and costs undertaken in the GSPA, including such risks and costs beyond the delivery point,”

R P Sharma, RIL’s President (Gas Business) wrote to power secretary H S Brahma. Brahma had, last week, questioned the levy of marketing margin on thesale of gas.

Earlier this month, Anil Ambani’s Reliance Natural Resources (RNRL) had also said that RIL is charging an illegal and unauthorised marketing margin of $0.135 per mBtu (Rs 6.6) on the sale of KG-D6 gas. Another group firm, RelianceInfra had, last week, refused to pay the levy, prompting RIL to issue a notice for suspension of the supply.

RIL’s Sharma said the $0.135 per mBtu marketing margin over and above the price was to cover risks like seller’s liabilities in case of non-supply, customers drawing less than their quota, non-payment of dues and settlement of disputes and claims on quality, quantity or terms of the GSPA.

Gas from RIL’s KG-D6 field is sold at $4.20 per mBtu. RIL says the marketing margin it charges is uniform for all the 40-odd customers and is lower than that charged by state-run GAIL.

“The other gas marketers in India — GAIL, IndianOil, BPCL, and GSPC —also charge marketing margin of around 18 cents per mBtu (5 per cent escalation every year) for sale of re-liquefied natural gas to its customers. GAIL also charges about $0.12 per mBtu on sale of gas produced from its Panna-Mukta-Tapti and Ravva fields,” Sharma wrote in the letter to the ministry.

“For KG-D6 gas, RIL had initially proposed $0.12 per mBtu as marketing margin but when customers sought multiple changes to increase RIL’s risks and liabilities, the levy was raised to $0.15 per mBtu. The same was again discussed with buyers in the fertiliser sector (who were given the top priority to receive KG-D6 gas) and the department of fertilisers and finally a marketing margin of $ 0.135 per mBtu was agreed with the buyers,” Sharma added.

While marketing margin is a charge for creation of market and servicing sale contracts, RIL had undertaken extensive activity to identify customers, execute and manage gas sales and purchase agreements, gas sales planning, daily gas sales operations, gas accounting and invoicing and collection,” the letter said.