The Telegraph
Saturday , March 29 , 2014
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RIL to sell gas at old rates for now

Price poser

New Delhi, March 28: The government today asked Reliance Industries to sell gas at the current rate of $4.20 per million British thermal unit till the new government reviews the gas price issue.

Oil minister M. Veerappa Moily has written to the Director-General of Hydrocarbons, approving a status quo on the gas price following the Election Commission’s directive to defer the proposed hike from April.

The delay will not have a material bearing on 85 per cent of the gas produced in the country as companies such as ONGC can continue sales at $4.2 per mmBtu on existing contracts.

However, contracts for RIL’s KG-D6 gas expire at the end of March. Reliance supplies 12-13 million standard cubic meters of gas a day to 16 fertiliser units.

Sources said RIL and the buyers of its KG-D6 gas had settled most issues on new sales pacts after a meeting called by the oil ministry.

Urea plants had flagged about 10 issues, including the duration of the contract and supplier liabilities, in the new Gas Sales and Purchase Agreement (GSPA) that RIL had proposed for the period starting April 1.

“Most of the issues have been resolved, barring one or two,” a ministry official said.

Officials said both sides were trying to come out with a middle path in the legal language of the pacts, which would take care of their respective interests. They are working on bringing both the parties to agree that RIL would sell gas to fertiliser units whatever the prevailing government price, while fertiliser companies would honour and pay Reliance Industries in case the price was revised.

RIL had agreed to a five-year validity for the new pacts, similar to the current one. It had previously offered three-month contracts in line with the new gas pricing policy, where rates would have changed quarterly based on average international hub prices and the cost of imported LNG in the preceding 12 months with a lag of one quarter. This was opposed by fertiliser units that buy KG-D6 gas.

To continue supplies from April 1, RIL has forwarded a simplified gas supply pact term sheet to buyers that would be valid till it is replaced by a new pact.

The key features of the GSPA term sheet include a clause allowing buyers to pay only for the quantity supplied. Key terms such as invoicing, payments and letters of credit are similar to the supply pact signed in 2009.

The official said the issue that remains to be resolved is the marketing margin to be charged by RIL.

Meanwhile, British energy giant BP and Niko Resources of Canada have served arbitration notices on the government, joining partner Reliance Industries in the fight against the levy of penalties for KG-D6 gas production falling short of target.