Impending elections and the model code of conduct notwithstanding, the Government will have no option but to decide on the controversial issue of the price to be paid for gas from Reliance Industries Ltd-operated East Coast gas fields.
A senior Petroleum & Natural Gas Ministry official said that the contractors (RIL-BP-Niko) have to be informed within the next few days, as the existing price agreement for gas from D-1, D-3 and fields in the KG-D6 block is valid only till March 31, 2014.
Even if the Election Commission does not allow the implementation of the new gas price (as per the Rangarajan formula) effective April 1, the Government will still have to decide whether the D6 contractors can continue selling at the current price of $4.2/unit (excluding marketing margins, transmission tariffs and other levies).
Deferring the implementation of the new price, however, will not impact the price contracts of ONGC, Oil India, or other joint ventures, which can continue with the existing prices.
But, for blocks like KG-D6 that had been offered under the New Exploration Licensing Policy (NELP), the price was fixed only for a five-year period, which expires at the end of this month.
Meanwhile, the Ministry is hopeful of getting the EC’s decision in a day or so. The EC will also need to factor in the ongoing case in the Supreme Court on petitions against the Government’s decision to allow RIL to raise gas price.
KG-D6 is one of the two producing blocks signed under the country’s nine oil and gas auctions. So far, 254 contracts have been signed.
The other producing block is Gujarat State Petroleum Corp-operated Cambay onshore block (mainly oil).
The prevailing gas prices in the country range from $4.2/unit to $5.73/unit (gas is measured in million British thermal units).
Bank guaranteeOn the issue of the bank guarantee which Reliance has to give for availing itself of the new gas price (if implemented), the official said the responses of the Law and Finance Ministries are still awaited.
The Government, after a Cabinet Committee of Economic Affairs meeting in December 2013, had said that the contractor will be allowed to sell gas from D-1 and D-3 fields in the D6 block at the revised price.
But, the Ministry held that since BP-Niko, the two foreign partners of RIL in the block, were not party to the ongoing arbitration between the Indian firm and the Government, the two cannot benefit from the new price.
Meanwhile, RIL has sent out draft gas supply and sale agreements to its buyers, stating that it will be based on the Government notified price.
The Government price is being worked out based on the Rangarajan formula.
According to reports, RIL has based its price on Gross Calorific Value (GCV) instead of the current Net Calorific Value (NCV). The heat produced from natural gas is measured in calorific value. For Reliance, GCV would fetch higher prices than what is being indicated to be proposed Government price of about $8/unit.