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EC stuns Reliance, blocks gas price

New Delhi, March 24: Mukesh Ambani-owned Reliance Industries Ltd suffered a huge setback tonight after the Election Commission directed the petroleum ministry to put off plans to introduce a gas pricing policy from April 1.

The freeze was ordered as the Supreme Court had not yet given its verdict on a petition challenging the gas-pricing formula.

The pricing formula had been proposed in December 2012 by a committee headed by C. Rangarajan, the chairperson of the Prime Minister’s Economic Advisory Council.

It was widely expected to re-ignite production at the country’s only operational deep-water gas field in the Krishna-Godavari basin off the coast of Andhra Pradesh.

The controversial pricing formula was designed to raise the price of gas from the KG-D6 basin from $4.2 per million British thermal units (mBtu) to around $8.4 per mBtu.

The spokesperson for Reliance Industries refused to comment on the Election Commission’s directive.

Sources in the petroleum ministry said the new government formed after the May elections would now decide on the increase in prices.

In a letter to chief election commissioner V.S. Sampath, Aam Aadmi Party convener and former Delhi chief minister Arvind Kejriwal had said: “The Supreme Court is currently hearing the matter and I would request you to direct the central government not to implement its decision till the election process in the country gets over since it will affect a very large section of the population.”

An increase in the gas price is expected to raise electricity rates from gas-powered plants and fertiliser prices.

The apex court is hearing petitions against the gas price hike filed by CPI leader Gurudas Dasgupta and AAP member and lawyer Prashant Bhushan.

The issue had escalated into a war of words in recent weeks between Kejriwal and the $68.4-billion Reliance Industries.

Kejriwal has contended that the new formula would lead to a windfall gain for RIL and is another egregious example of the crony capitalism practised by the UPA government.

He had accused RIL and its partner, the $396-billion oil giant BP Plc, of deliberately cutting back gas production at KG-D6 to arm-twist the government into implementing the gas-pricing formula.

Gas production from KG-D6, which was supposed to touch a peak production rate of 80 million standard cubic metres per day (MMSCMD), has slumped to 13.28 MMSCMD this month. For long, Reliance has maintained that geological complexities had led to the slump in gas production.

Reliance had struck back with a high-decibel campaign through social media websites, mobile messages, and YouTube videos to rubbish Kejriwal’s charge of profiteering.

In its campaign, RIL has said the gas price hike does not violate the model code of conduct of the Election Commission as the decision to implement the formula was announced last June.

Although the Centre had accepted the Rangarajan formula in June last year, the cabinet committee on economic affairs (CCEA) approved the switch to the new pricing regime only in December and notified it in January. The new formula was supposed to apply for five years from April 1.

The old gas price of $4.20 per mBtu was fixed by an empowered committee headed by then finance minister Pranab Mukherjee in August 2007. It was supposed to be effective for a period of five years from the time KG-D6 began commercial production.

The Reliance gas field started commercial production in April 2009 and the old price was supposed to remain effective till the end of March.

Sources indicated that the petroleum ministry would now have to decide whether RIL could continue to sell the KG-D6 gas at the current rate.


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