Reliance Industries Ltd will get the benefit of higher gas price, but with riders. A decision to this effect was taken by the Cabinet Committee on Economic Affairs on Thursday.
The CCEA endorsed the Petroleum & Natural Gas Ministry’s view that RIL be allowed to benefit from the revised gas price effective April 2014, in return for a bank guarantee for the unmet supply commitment from its KG-D6 block.
On the overall gas price, the Petroleum & Natural Gas Minister, M. Veerappa Moily, told mediapersons after the CCEA meeting that there will be no cap/floor price on the gas rates effective April 2014 neither will there be any change in the formula that was decided by the Cabinet earlier.
The Finance Ministry, which had earlier expressed reservations on allowing RIL sell KG-D6 block gas at higher price, had recently given an in-principle nod to the Petroleum & Natural Gas Ministry’s proposals.
Cautious approach But, it had also asked its counterpart Petroleum & Natural Gas ministry to adopt a cautious approach. It asked the Petroleum Ministry to examine issues such as what happens if the arbitration case with RIL lingers on and the likely course of action if the company fails to fulfil its bank guarantee obligations.
On November 13, Moily had told Business Line that RIL has agreed to the Government condition of a bank guarantee that will allow it to charge higher gas price from April 2014.
The Minister had said that bank guarantee to be paid by RIL will depend on the quantum and the gas price. “The calculation will be done,” he added.
Currently, RIL gas is sold at $4.2/unit at landfall point. Local levies, marketing margin, and transmission tariff will be added to this price.
Official sources told Business Line that shortfall in supplies was about one trillion cubic feet. According to the initial estimates, KG-D6 output was to reach 80 mmscmd in 9-12 months of start of production. Production from D-1, D-3 fields in the block started in April 2009. After hitting a peak of 60-61 mmscmd in early 2010, the output started to drop. Today, the output from D-1, D-3 fields stands at 9.5 mmscmd. Total output from D6 block that includes MA fields is at around 11-12 mmscmd.
Bank guarantee mechanism is better than the earlier proposal of asking RIL and its partners – BP and Niko — in the block to sell the unmet supplies from D6 fields at rates lower than the new price effective from 2014, another source said.