CCEA permits RIL higher gas prices in lieu of bank guarantee

The Cabinet Committee on Economic Affairs (CCEA) Thursday permitted Reliance Industries Ltd (RIL) to sell natural gas at the revised doubled price from April provided the firm gave a bank guarantee.

"The contractor would be allowed to sell D1 and D3 (fields) gas at revised prices from 1-4-2014. The sale would be permitted on the basis of a bank guarantee by RIL in favour of the government," Petroleum Minister M. Veerappa Moily told mediapersons while announcing the CCEA decision.

The bank guarantee, which will be around $9 billion, will be encashed if it is proved that the company hoarded gas or deliberately suppressed production at the main Dhirubhai-1 and 3 (D1 and D3) fields in the eastern offshore KG-D6 block.

The issue had held up notification of the new gas pricing formula that will be applicable to all producers and all forms of gas including coal-bed methane (CBM) and shale gas.

The government in June approved pricing of all domestically produced natural gas at an average of global gas hub rates and price at which India imports LNG (liquefied natural gas), as suggested by the Rangarajan committee. The rate in April 2014, when the new price will come into effect, will be about $8.4 per million British thermal units as against the current $4.2 mbtu.

In the arbitration, RIL is saying the fall in output is owing to geological complexities and lower than anticipated reserves.

"Cap or floor on gas prices is not required to be stipulated in the new formula," Moily added.

On the second and related decision taken Thursday Moily said CCEA had decided there is no change required in its earlier stand on spot prices.

"No change needs to be made in the earlier decision of CCEA of including spot prices in the computation of gas price," the petroleum minister said.

The finance ministry had wanted certain changes in the approved formula by excluding LNG purchases from the spot market, which it said was highly volatile.

--Indo-Asian news Service

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