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Reliance Industries Ltd has agreed to the Government condition of a bank guarantee that will allow it to charge higher gas price from April 2014.
The Ministry for Petroleum & Natural Gas is of the view that if Reliance wants to benefit from the revised gas price, it should submit a bank guarantee for the unmet supply commitment from its KG-D6 block.
The D6 block is currently producing much lower than the supply commitment of about 61 mmscmd.
M. Veerappa Moily, Minister for Petroleum & Natural Gas, told Business Line , “RIL has given in writing (that it will submit a bank guarantee). We have put it up in the Cabinet Committee on Economic Affairs note which has been sent for comments from the Law and Finance Ministries as well as the Planning Commission.”
Moily further said that he has asked them to give their comments in 15 days. “Of this seven days have already passed. Once we get the comments we will move to the CCEA.”
When asked if $8.4 a unit (gas is measured in million British thermal units) is the new gas price, as was being reported, Moily said, “It is not correct. Price to be effective from April 1, 2014 will be decided based on the pricing formula derived on the then prevailing rates.”
The Minister said that the bank guarantee to be paid by RIL will depend on the quantum and the gas price.
Currently, RIL gas is sold at $4.2/unit at landfall point. Local levies, marketing margin, and transmission tariff are added to this price.
Sources said that the shortfall in supplies was about one trillion cubic feet.
According to the initial estimates, KG-D6 output was to reach 80 mmscmd in 9-12 months of start of production. Production from D-1, D-3 fields in the block started in April 2009. After hitting a peak of 60-61 mmscmd in early 2010, the output started to drop.
Today, the output from D-1, D-3 fields stands at 9.5 mmscmd. Total output from D6 block that includes MA fields is at around 11-12 mmscmd.
The bank guarantee mechanism is better than the earlier proposal of asking RIL and its partners – BP and Niko – in the block to sell the unmet supplies from D6 fields at rates lower than the new price effective from 2014, another source said.
Sources said that everyone preferred the bank guarantee option as it will not only help avoid litigation, but also help both the Government and RIL from losing money by selling at lower rates.
Lower rates would result in lower revenues for the Government in the form of royalty, they pointed out. Besides, the bank guarantee option works out cheaper.
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