Reliance Industries and its two international partners in the KG-D6 block are likely to extend a bank guarantee of $120-135 million (₹750-850 crore) to get the benefits of higher gas price.
Though the Petroleum and Natural Gas Ministry is yet to inform the three players — Reliance, BP and Niko — about the figures, the estimates are based on the proposed formula.
“What we understand is that the bank guarantee will be based on the actual daily output of the D-1 and D-3 fields (the producing fields in the D6 block off the Andhra Pradesh coast) multiplied by the difference between the new and the existing gas prices and the number of days of production,” said B. K. Ganguly President and COO (Business Operations Explorations and Production), RIL.
“Once we agree on the principles of bank guarantee calculations and the process of furnishing it, we don’t expect it to take long to implement,” Ganguly told
The Government, while notifying the new gas pricing policy, had said RIL could benefit from high gas price if it submitted a bank guarantee. The new price is likely to be almost double the current price of $4.2 a unit at the landfall point (gas is measured in million British thermal units), which RIL gets for the D6 block. This price is exclusive of the transportation charges, marketing margin, State taxes and levies.
The Government proposes to calculate the new gas price based on the average of the last four quarters. On January 24, Petroleum and Natural Gas Minister M. Veerappa Moily said the guidelines for submission of bank guarantees for the D-1 and D-3 fields would be finalised by February 10.
It is not clear whether RIL and its partners will pay the bank guarantee at one go or will make a quarterly payment. It is also not clear for how long the guarantee has to be paid.
RIL and its partners recently reversed the continued drop in the output from the block. The current production from the fields (D-1, D-3 and MA) is 13 million standard cubic metres a day (mmscmd) and is likely to be maintained at this level or a little higher at 14-15 mmscmd during the fiscal.
Fresh agreementsOnce the issue of pricing is resolved, RIL-BP-Niko will have to start work on gas supply/sale agreements with its consumers. The existing agreements expire on March 31. Currently, the companies have over 50 agreements, of which 16 are live and with fertiliser companies.
It is estimated that the 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 the start of production. Output from the 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.