The Telegraph
Monday , April 28 , 2014
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RIL push to end gas price freeze

New Delhi, April 27: Reliance Industries has asked the Election Commission to “retract” its order directing status-quo on gas price, arguing that the poll panel had allowed the RBI to issue new bank licences even though the model code of conduct for the general elections was in place.

The EC has allowed the RBI to issue licences to set up banks, while asking the petroleum ministry to hold the hike in the price of natural gas from April.

RIL said the pricing guideline was notified in January after the cabinet considered the gas price issue twice in June and December. The guideline was prepared on the basis of a formula prepared by a panel headed by C. Rangarajan, chairman of the Prime Minister’s economic advisory council.

“The pricing guidelines were notified before the model code of conduct came into force. The production sharing contract is a solemn agreement and any violation of the contract will have far reaching implications,” Reliance Industries said in a letter to the poll panel seeking “retraction” of this order.

The government had in 2007 fixed a price of $4.2 per million British thermal unit (mBtu) for gas from Reliance’s facilities in the Krishna-Godavari basin (KG-D6) for the first five years of production. The KG-D6 fields began production on April 1, 2009 and the price expired on March 31, 2014.

The price of natural gas is expected to almost double to $8.3 per mBtu when the Rangarajan formula is implemented.

Following the poll panel’s decision, there is uncertainty not only on the new price of gas but also if the price will apply retrospectively or from a new date of notification.

After a tripartite discussion among RIL, the fertiliser industry and the oil ministry, the explorer had agreed to provide uninterrupted supply of gas even after the expiry of the contract in March.

However, there was no agreement on the price. RIL wanted security of payment for the price difference as the formula had been notified and only the notification of the exact price was left.

However, the fertiliser association refused to sign a contract till the government came out with a new price.

The 16 fertiliser firms, which buy about 13 million metric standard cubic metres a day (mmscmd) of KG-D6 gas, had in 2009 provided financial securities to guarantee payment at $4.20 per mBtu. RIL now wants them to provide additional letters of credits for another $4.1 per mBtu.

“These (terms and conditions) include your providing us the security for payment for the differential between the previous price which has come to an end on March 31 and the price applicable effective April 1,” RIL has written to the oil ministry.

Adding to Reliance’s woes, the BJP, which opinion polls suggest is likely to form the next government, has indicated that it would review prices by consulting all stakeholders, including consumers.

“If we come to power, we will have to look at all the facts, all the realities on the ground, while keeping the interest of stakeholders in mind — in particular the consumers,” Narendra Taneja, national convener of the energy cell for the BJP, said.

He said the party could relook the Rangarajan formula and the questions raised about it and decide whether to go with it or not.