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Reliance ups ante in gas price tussle

New Delhi, May 10: Reliance Industries and partners BP plc of the UK and Canada’s Niko Resources have slapped an arbitration notice on the government over a delay in implementing revised gas prices.

“The delay in notifying the higher prices of gas has resulted in a loss of Rs 300 crore per month there is no clarity on what the gas price would be in the future, failing which all our current and future investment plans are in jeopardy,” RIL said in a note attached to the arbitration notice issued on May 9.

The government had approved the Rangarajan formula under which gas prices could have gone up to $8.4 per million British thermal units (mBtu) from April 1 this year from $4.20 per mBtu.

However, the Election Commission on March 24 had asked the government to defer the price hike as part of the code of conduct that stopped the government from taking major policy decisions during national elections. This code will end on Monday evening after the final phase of polling is over.

Justifying the move to seek arbitration proceedings, RIL and its partners said in a joint statement, “The continuing delay on the part of the government in notifying the new price has left the parties with no other option but to pursue this course of action. Without this clarity, the parties are unable to sanction planned investments of close to $4 billion this year.”

RIL also fears that the delay will hurt the ability of the parties to appraise and develop other significant discoveries made last year. In all, the parties were planning to invest $8-10 billion in the KG-D6 block to increase production.

“We are the only Nelp block that is selling gas today and our contracts to sell gas at $4.20 per mBtu expired on March 31, 2014,” RIL said.

The EC decision “resulted in an arbitrary decision by the oil ministry to force us to keep selling gas at $4.2 per mBtu after April 1. This is in contravention of the production sharing contract,” RIL said.

Analysts saw Reliance’s move as a bid to pressure the government to go ahead with the price hike once the elections are over.

“This is a move by RIL to bring out the policy paralysis of the UPA government and add its own quota of adverse publicity to it. Also, it did not want to engage with the new government on a confrontation note,” Gokul Chaudhri, energy analyst with BMR Advisors, said.

Although the cabinet approved a new formula to price gas on December 19, 2013, and notified it on January 10, the new rate was not announced. The deferment has triggered speculation about the quantum of increase and also whether it would be done on a retrospective basis.

The oil ministry has indicated that gas prices will be announced for the second quarter of 2014, thus ignoring the cabinet’s decision to change prices from April 1. The Bhartiya Janata Party, which has emerged as the leader in most opinion polls, has indicated that it may explore different pricing models.