Haze over D6 gas price despite Ministry missive

The Petroleum and Natural Gas Ministry’s latest communication intended to put an end to any uncertainty over Reliance Industries-operated KG-D6 gas price has, instead, left both the seller and the buyers confused.

Neither the producer nor the buyers, the fertiliser companies, knows what the price of gas will be after the model code of conduct expires on May 16.

The March 28 communication to RIL from the Ministry said that it will continue selling the gas at the current rate ($4.2/unit) till the model code of conduct is in place. This has created a new set of worries for the buyers and the seller, as neither knows what will be the price for the period till the new Government comes into place.

Besides, if the new regime decides to review the controversial ‘gas price’, any decision may not be made before the end of the first quarter of the current fiscal.

The Ministry was to communicate the price which RIL and its partners in D6 block — BP and Niko — will get for the fuel once their current supply agreements with the buyers expires on March 31. At present, negotiations on gas sale agreement with buyers are under way and are expected to be firmed up on March 31.

Currently, RIL and its partners have over 50 agreements, of which, 16 are live — all of them with fertiliser companies.

Sources in the know of the development said the sale agreements, being negotiated, are to be treated as a ‘bridge arrangement’. This could mean fresh agreements need to be inked once the new price is announced.

While agreeing that it has created a degree of uncertainty, a senior Petroleum Ministry official said that fresh agreements may not be required as a clause can be included in the existing agreement making it provisional. In a worst-case scenario, the Ministry expects a decision on new gas price by the first fortnight of July.

On the difference between the producer and buyers on the method of price calculation, whether it will be on the basis of Gross Calorific Value (GCV) or Net Calorific Value (NCV), the official said the high-level Ministerial panel on the gas price formula had said that it will be based on NCV. But the industry is of the view that it should be GCV, which is a global practice. “We hope to plug this loophole shortly,” the official said.

The heat produced from natural gas is measured in calorific value. If RIL calculates it on GCV, then the price will automatically go up an extra dollar, according to industry sources.