DGH reopens issue of sharing RIL's earnings on D6 gas

Reopening the issue of the marketing margin charged by Reliance Industries on KG-D6 gas sales, oil regulator DGH has asked the Mukesh Ambani-led firm to share a part of these earnings with the government.

The Directorate General of Hydrocarbons (DGH) wants the government to also get a share of the profits from the $0.135 per million British thermal units (mmBtu) marketing margin charged by Reliance from KG-D6 consumers, sources privy to the development said.

It wants the marketing margin to be added to the gas sale price of $4.20 per mmBtu and indicated that profit-sharing between the contractor and the government should happen at $4.335 per mmBtu.

At present, RIL and the government split profits at the gas sales price of $4.20 per mmBtu after deducting the project cost.

Sources said the DGH's demand may open a Pandora's Box, as even public sector firms like GAIL charge a marketing margin for the effort and risk they take in selling the hydrocarbon. GAIL charges up to $0.18 per mmBtu as a marketing margin and none of it is shared with the government.

The DGH demand also runs contrary to the stance the Oil Ministry took on the issue in Parliament last year.

The then-Oil Minister Murli Deora had on February 24, 2010, told the Rajya Sabha that oil and natural gas producers, including Reliance, need not share the marketing margin they charge from their clients with the government.

Deora had said the marketing margin of USD 0.135 per mmBtu for KG-D6 gas was a bilateral issue between the seller (Reliance) and the buyer.

The government has approved the price for gas sales at the delivery point of the KG-D6 field as per the provisions of the Production Sharing Contract (PSC) inked with RIL, he said.

"The said price ($4.2 mmBtu for five years) does not include any charge beyond the PSC delivery point. The marketing margin (levied by Reliance) is beyond the delivery point and arises as a result of the gas sale and purchase agreement signed between the seller and the buyer," Deora had said.

The PSC provides for sharing of revenues from the sale of gas between the government and the contractor at the said price at the delivery point. It does not envisage sharing of revenues earned by the contractor from marketing margins with the government, he had further stated.

Sources said the marketing margin was in lieu of the risks and costs incurred by the contractor on marketing the gas.

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

Furthermore, the marketing margin is charged by Reliance on account of its extensive efforts to identify customers, execute and manage gas sales and purchase agreements (GSPAs), besides gas sales planning, daily gas sales operations, gas accounting and invoicing and collection, sources said.

The marketing margin was opposed by the Anil Ambani Group, but after the Oil Ministry clarification, it was deemed settled.

Other gas marketers like state-run GAIL India also charge a marketing margin. GAIL charges a $0.18 per mmBtu margin on the sale of regasified-LNG and about $0.12 per mmBtu for gas from fields like Panna/Mukta and Tapti and Ravva.