The Hindu Business Line : Reliance gas: A clarification

This is with reference to the editorial "No case for Govt." (Business Line, May 6): At the outset, it may be clarified that no decision has been taken by the Government on the proposal of Reliance Industries Limited (RIL) to sell Reliance Natural Resources Limited (RNRL) natural gas from KG-DWN-98/3 (in Krishna-Godavari deepwater) at $2.34 per MMBTU.

Further, the Government of India and Reliance Industries Ltd.-Niko Resources Ltd. (collectively called `Contractor') have signed a Production Sharing Contract (PSC), which governs the rights and obligations of respective parties.

Article 21.6.1 of the PSC stipulates that the Contractor shall endeavour to sell all the natural gas produced and saved from the contract area at arm's-length prices.

Further, the PSC provides for valuation of natural gas on the basis of competitive arm's length sales in the region for similar sales under similar conditions. Article 21.6.3 of the PSC provides that the formula or the basis on which the prices shall be determined shall be approved by the government prior to the sale of natural gas to the consumers/buyers.

The Government is neither a party to the de-merger of RIL and its subsidiaries nor it is a party to the agreement entered into between RIL and RNRL for sale and purchase of gas from Krishna-Godavari Block.

The Government's take in a PSC consists not only of royalty on natural gas but also of profit on petroleum which is shared between the Government and the contractor and which forms one of the important basis for evaluating and concluding such a PSC on the basis of international competitive bidding. For this reason, all PSCs signed under NELP provide for approval of gas formulae/prices by the Government prior to sale. Government approval has been sought by RIL pursuant to the terms of the PSC, which is a legally binding contract and is not tantamount to interference by the Government.

R. C. Joshi

Information Officer

(Petroleum and Natural Gas),

Press Information Bureau,

New Delhi

The editorial was in response to an official statement from Reliance Natural Resources Ltd. on the subject of supply of natural gas by Reliance Industries.

The company had contended that the contractual price for supply was fair and that the Government is not justified in opposing it.

The editorial took the view that the company's contention prima facie appeared reasonable if the Government had indeed objected to the price as not being based on an arm's-length principle.

It is true that the Government is not a party to the restructuring of the businesses of Reliance Industries. But all such proposals are, under law, subject to confirmation by the High Court having jurisdiction over the company and the Central Government is entitled to be heard before any orders are passed by the Court.

We had merely pointed out that if the supply contract was intrinsic to the restructuring proposal under consideration of the Court, as contended by the company, then the Government's silence does weaken its case that the terms of the gas supply contract are prejudicial to public interest.

It is another question if the company were to contract for supply at prices that are unrelated to the market.

— Editor

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