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Moily clears air on RIL gas price

M. Veerappa Moily in Mumbai on Tuesday. (Reuters)

Mumbai, Nov. 26: Petroleum minister Veerappa Moily today said Reliance Industries Ltd (RIL) would be eligible to sell gas from KG-D6 under the new pricing formula that kicks in on April 1 next year.

While announcing plans to move a cabinet note in the next few days, Moily signalled his resolve to scuttle a move within the petroleum ministry to disallow the oil and gas behemoth from selling gas at the higher price under the Rangarajan formula until it clears its production shortfall that has built up since 2010.

Moily said RIL had given bank guarantees in respect of two of the five gas discoveries to cover the production shortfall, ending the controversy over whether or not the company would be entitled to charge the higher gas price next year.

The KG-D6 block is currently producing at a rate much lower than the supply commitment of about 61mmscmd.

In June this year, the government had agreed to increase the price at which gas would be sold to the producers of power, fertilisers, minerals and steel, benefiting gas producers, including RIL and state-run ONGC.

The price for natural gas produced by companies such as RIL is set to be raised from $4.2 per million metric British thermal units (mmBtu) based on the formula of gas pricing of the Rangarajan Committee Report. Although the committee did not recommend any particular price, experts have estimated that the gas price could double to $8.40 per mmbtu.

However, RIL has seen declining output from the KG-D6 block. It has, therefore, been proposed that the company will have to provide a bank guarantee of $135 million every quarter to get the higher price for natural gas. The bank guarantee will cover the difference between the current gas price and the rate of $8.4 per mmBtu.

Reportedly, the bank guarantee will be encashed if it is proven that RIL hoarded gas or deliberately suppressed production at the two main gas fields.

“We have taken a firm decision for enhancement of the gas price in June 2013 and it will be effective April 1, 2014. It includes all the private sector and public sector, no exception whatsoever,” he said in a clear indication that RIL would also get the revised price for natural gas sold from its blocks.

Talking to reporters here today, the petroleum minister admitted that while there were certain issues with regard to decline in production from the KG-D6 block, it only related to two discoveries: Dhirubhai-1 and 3 (D1&D3).

“As far as these discoveries are concerned, they have offered bank guarantees… We are putting a cabinet note and within 10 to 15 days that matter will be cleared (up),” he said.

Moily added that a notification regarding the implementation of the new price formula would be issued shortly.

On Monday, the petroleum minister had met investors, including some of the prominent oil companies, financial institutions and analysts here last night ahead of the 10th round of Nelp auctions that will be announced by January 15.

Moily said while 86 blocks would be offered for bidding, the government had succeeded in getting clearances from various agencies for around 55 blocks. This is part of its efforts to attract greater investments in the sector by reducing the hardships that exploration companies face in India.

Moily said private sector oil companies had also sought permission to explore shale gas in India. At present, only state-owned units can explore shale gas in the country.

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