With no dispute, notice not tenable: Petroleum Ministry

The Petroleum Ministry has ‘informally’ asked Reliance Industries to withdraw the arbitration case it has filed against the Government disputing the decision to postpone implementation of the revised gas price guidelines.

People privy to the development told Business Line that at a recent meeting between PMS Prasad, RIL’s Executive Director and CEO, Petroleum Business, and Petroleum Secretary Saurabh Chandra, the latter suggested that the contractor of the controversial KG-D6 block should withdraw the arbitration notice.

RIL and its partners, BP and Niko, had served a notice on the Ministry in May. On June 17, another notice was sent on the appointment of an arbitrator. The Ministry has 30 days to respond.

“The Government is keen to resolve the issue, but the same cannot be done under pressure,” said an official, adding that the ‘interests of sectors such as power and fertilisers have to be taken into account.”

According to the Petroleum Ministry, at this stage, no dispute exists because the Government has the right to decide on the price of gas, a natural resource that belongs to it. Therefore, it said, the notice is not tenable and the contractor should withdraw it. RIL and partners had filed an arbitration notice as their future investment plans depend on the gas price.

New pricing formula

Meanwhile, a consensus seems to be emerging in the Government that the pricing formula suggested by the Rangarajan panel needs review. The Petroleum Ministry has sought Prime Minister Narendra Modi’s guidance on the issue. It has said that a decision on the new price for the RIL-operated KG block has to be taken before July 1.

This urgency is because of the fact that RIL was told, through a communication on April 21, that “the Government will notify the price after the code of conduct (general elections) is lifted. As per the notified guidelines, the earliest possible date for applying the revised prices is July 1, 2014…”

Till the new price is announced, the contractor had to charge the existing price of $4.2 a unit (gas is measured in million British thermal units).

The Ministry wanted to make a presentation to Modi on the subject in the presence, among others, of the Finance, Power, and Chemicals and Fertilisers Ministers and their officials. It also flagged the issue in its June 20 presentation to the Prime Minister. Power, chemicals and fertilisers are among the industries that are directly impacted by a change in the gas price.

Every dollar increase in the price means power costs going up by about 45 paise a unit, CNG (compressed natural gas) cost rising ₹2.81 a kg (in Delhi), and PNG (piped natural gas) going up by ₹1.89 per standard cubic metre.

Price calculation

Besides, the Ministry is also seeking guidance on the method of price calculation — if it should be on the basis of gross calorific value (GCV) or net calorific value (NCV). The heat produced from natural gas is measured in calorific value. The issue cropped up when RIL-BP-Niko proposed that the price be based on the GCV.

This was not acceptable to buyers, as the gas price would automatically go up by a dollar.

(This article was published on June 22, 2014)
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