Law ministry, too, for expansion of scope to encash RIL bank guarantee

Richa Mishra New Delhi | Updated on November 25, 2017 Published on April 29, 2014

Whether RIL’s foreign partners can become a party to the guarantee also being examined

The Law Ministry, too, wants the scope for encashment of a bank guarantee to be given by Reliance Industries (RIL), if it is to sell gas at revised rates, expanded.

The Ministry of Petroleum and Natural Gas had earlier said the guarantee also needed to cover ‘any incidental legal proceedings’, if decided in favour of the Government, and not just the ongoing arbitration between RIL and the Government.

This has become a cause of concern for RIL.

In concurrence

The Petroleum Ministry had sought the views of the Law and Finance Ministries. “While Law is on the same page as us, the response from the Finance Ministry is still awaited,” said a senior Petroleum Ministry official. “We have just gone with what the Cabinet had proposed on the scope of the bank guarantee,” he added.

In a related development, the Supreme Court on Tuesday appointed Michael Hudson McHugh, a former judge of the High Court of Australia, as the third arbitrator and head of the panel of arbitrators that will hear the dispute between the Indian Government and RIL.

Conflict potential

By expanding the scope of the bank guarantee, the Government is protecting itself from any political backlash on account of the production profile of the KG-D6 block. But Reliance fears this will create unnecessary conflict in an otherwise clear legal contract.

Another bone of contention between the Government and Reliance Industries has been the former keeping BP and Niko, the Indian company’s foreign partners in the block, out of the bank guarantee.

The Petroleum Ministry is independently examining whether RIL’s foreign partners can become a party to the bank guarantee.

Gain as guarantee

The agreement states that the bank guarantee will be calculated by multiplying the actual daily output by the difference between the current price and the new proposed price.

The current output from the D-1, D-3 and MA fields of the block is 12.5 mmscmd (million standard cubic metre). The existing price is $4.2/unit (million British thermal units), and the proposed price is likely to be almost double.

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Published on April 29, 2014
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