RIL's wait for higher gas price to get longer

May be paid the old price of $4.2 mBtu till arbitration is over

Mukesh Ambani's Reliance Industries (RIL) might be denied a higher gas price from its D1 and D3 fields until the arbitration process with the government is over and a third-party expert report on the fall in output at the KG-D6 block is out.

According to a Cabinet note the petroleum ministry is working on, RIL would be paid the old price of $4.2 a million British thermal unit (mBtu) even after April 2014, when the prices of domestic natural gas are to be almost doubled, according to the Rangarajan formulae, to above $8 a mBtu.

Till now, it was believed the company might be denied a higher price only if it was proved that there was an artificial suppression of gas from the fields.

"The Cabinet note that the ministry is working on states that until the arbitration process over imposing of a fine related to hoarding of gas and the report of a third-party expert is completed, RIL would get the old price," said a senior petroleum ministry official.

Petroleum Secretary Vivek Rae said on Friday the Cabinet note would be finalised within a week. "We have already got the comments of the finance ministry and the Planning Commission and are drafting a response to these," he added, tightlipped about the ministry's stand. The Cabinet note was to deny RIL a higher price from its existing fields due to a fall in output.

Responding to reports that the finance ministry has suggested a cap on pricing of $4.2 per mBtu, a senior finance ministry official said, "We never suggested a particular cap. We just said it should not be open-ended… There is no need to go to the Cabinet for enforcing contractual terms as no policy issues were involved."

The official added, according to a DGH (Directorate General of Hydrocarbons) expert panel report, the failure to meet contractual obligations might have contributed to a fall in production. It is for the petroleum ministry to see it in the context of the contract.

When asked about the government's take on charging of old prices until the arbitration process was complete and the analyst report was out, an RIL official said, "We have not been informed about anything in this regard. The production drop in gas from D1 and D3 was purely technical. There was no intentional hoarding."

After the petroleum ministry imposed a penalty of $1 billion on the company, RIL had initiated an arbitration process which is still pending. In a management committee meeting last week, RIL had suggested the names of four international reservoir consultants - Ryder Scott; DeGolyer and MacNaughton; Gaffney, Cline & Associates and Netherland, Sewell & Associates - to be appointed to check for hoarding of gas at KG-D6. The DGH would decide on it.