The Hindu Business Line : Reliance set to ink pact with fertiliser cos for KG block gas

Problem areas
The fertiliser companies had objected to provisions related to the take or pay, no supply or pay discount for supply of gas of poor quality.

Richa Mishra

New Delhi, March 22 Reliance Industries Ltd (RIL) is set to sign gas sale and purchase agreement (GSPA) with the identified urea plants sometime next week.

RIL and its partner NIKO are expected to begin gas production from its D6 block in Krishna-Godavari Basin in a couple of weeks. Sources told Business Line that, “the D6 gas producers are expected to ink a GSPA with 12 fertiliser companies next week.”

The prospective buyers include Rashtriya Chemicals and Fertilisers (RCF), Nagarjuna Chemicals and Fertilisers, IFFCO, KRIBHCO, Chambal Fertilisers, Tata Chemicals, Indo-Gulf Fertilisers, and companies fed by GAIL (India) Ltd’s Hazira-Vijaipur-Jagdishpur pipeline.

The quantum of 15 mscmd of gas to be supplied to the fertiliser sector has already been decided by an Empowered Group of Ministers (EGoM). The other sectors prioritised by the EGoM were gas-based power plants, gas-based LPG plants, and city gas distribution projects.

The EGoM had also decided that the operator would sell gas produced under the New Exploration Licensing Policy (NELP) to consumers in accordance with the marketing priorities determined by the Government. It had also decided the D6 gas price of $4.2/mBtu at landfall point (for a crude price greater or equal to $60 a barrel). The price was applicable to all consumers across all sectors. After several rounds of deliberations and revising the initial GSPA, the two parties (buyers and the sellers) have agreed on the terms and conditions, sources said.

The fertiliser companies had objected to certain provisions of the initial pact.These related to the take or pay, no supply or pay discount for supply of gas of poor quality, and operational difficulties in the procurement of gas. “The issues have now been resolved,” sources said.

Regarding an agreement with the power companies for gas supply, the Petroleum Ministry is understood to have approached the Election Commission seeking its nod for a meeting of EGoM to decide on the allocation for the sector.

Exchange rate

On calculation of exchange rate for selling gas, the EGoM had decided that the same practice being followed in other production sharing contracts (PSCs) signed by the Government, should be applied in the case of D6 gas and the price be denominated in dollar terms.

Regarding the methodology for calculating the exchange rate, sources said, conversion would take place on a current basis. By current basis, it was referring to the RBI reference rate on the day of the sales.

“Since currency fluctuations are the norm, it would be impractical to speculate on unintended or intended benefit or loss. Therefore, the only possible way to deal with issues like these is to adopt universal practices, which are applied across the board in all situations,” sources added.

The exchange rate is relevant under the PSC for computing not just the price of crude oil and gas but also costs and profit share.