Once bitten, twice shy. The Ministry of Petroleum and Natural Gas has expanded the scope for encashment of the bank guarantee that Reliance Industries will provide to benefit from the new gas price.

In the supplement agreement proposed for the bank guarantee, the scope has been extended to any “incidental legal proceedings”, if decided in favour of the Government, instead of just restricting it to the ongoing arbitration between the two (RIL and the Government).

The Government has been facing criticism for favouring Reliance Industries despite the operator not being able to control the steep decline in output from KG-D6.

Now, the ‘language’ has become a bone of contention between RIL and the Ministry, with the company expressing reservations on it. For the Government, this is to protect itself from any future political backlash on account of the production profile of the KG-D6 block, but the company fears this creates an unnecessary conflict in an otherwise clear legal contract.

The Ministry is getting the agreement along with RIL response legally vetted.

According to those in the know of the development, the difference between RIL and the Ministry is not on the method of calculation of the bank guarantee, but on the expansion of its scope and restricting it to the Indian company.

The supplement agreement holds only RIL responsible for the bank guarantee, not its foreign partners in the block — BP and Niko.

On how the bank guarantee will be calculated, the agreement states that it will be the actual daily output multiplied by the difference between the current price and the new proposed price, effective April 1.

The current output from D-1 and D-3 fields of the block is 13 million standard cubic metre, the existing price is $4.2/unit (gas is measured in million British thermal unit), and the proposed price is likely to hover around $8/unit.

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