CCEA allows gas price hike for RIL on basis of bank guarantee

Ending months of uncertainty, the Cabinet today decided to allow Reliance Industries to double the price of natural gas from April provided the firm furnishes a bank guarantee to cover its liability if gas hoarding charges against it are proved.
The bank guarantee, which will be equivalent to the incremental revenue that RIL will get from the new gas price, will be encashed if it is proved the company hoarded gas or deliberately suppressed production at the main Dhirubhai-1 and 3 (D1&D3) fields in the eastern offshore KG-D6 block since 2010-11.
The Cabinet Committee on Economic Affairs (CCEA) decided that the "contractor (RIL) will be allowed to sell natural gas from D1&D3 at revised price from April 1, 2014. The sale will be permitted on the basis of a bank guarantee to be furnished by RIL in favour of the Government for the incremental gas rate," Oil Minister M Veerappa Moily told reporters here.

The CCEA headed by Prime Minister Manmohan Singh decided there will be no change in the Rangarajan formula of pricing domestically produced gas - both conventional and non-conventional fuels such as coal-bed methane and shale gas - at an average of international gas hub rates and the cost of liquefied natural gas (LNG) imported into India.
"There will be no cap or floor for the price," Oil Secretary Vivek Rae said.
According to the formula, the gas price on April 1, 2014, for all producers including state-owned Oil & Natural Gas Corp (ONGC) and private firms such as RIL will be about USD 8.4 per million British thermal units against USD 4.2 currently.

Gas is a crucial input for the power and fertiliser sectors and every dollar increase will raise the cost of production.
Rae said the format of the bank guarantee will be vetted by the Law Ministry and a supplementary agreement will be signed with RIL by next month for furnishing and execution of the guarantees.