RIL frustrated by lack of clarity in D6 gas price

Reliance Industries fears that it may be compelled to shut down production from KG-D6 block in the absence of an agreement on the price of gas.

RIL has to sign sales agreements with consumers three weeks before the new price comes into effect (April 1). The existing gas sales and supply agreements expire on March 31.

PMS Prasad, Executive Director, RIL said “They have not declared the price for D6… no clarity on the bank guarantee…”

“I don’t know what we will do, may be pushed to shut down the production,” he told Business Line .

Currently, RIL and its partners in the block — BP and Niko — have over 50 agreements, of which 16 are live — all of them with fertiliser companies. Once the issue of pricing is resolved RIL-BP-Niko will have to start work on gas supply/sale agreements with its consumers.

Bank guarantee To benefit from the revised gas price, the Centre wants Reliance to furnish a full bank guarantee, or one that covers the entire production. Reliance has agreed to this, even though BP and Niko as partners would benefit from a higher gas price.

“Suddenly, we were told that since the other two are not part of the arbitration and so cannot furnish the bank guarantee,” said Prasad. He added that it is not clear whether this implies that the two will not be able to benefit from the new gas price.

According to Reliance, the guarantee has to be paid by all three consortium partners jointly, depending on their stake (RIL 60 per cent, BP 30 per cent, Niko 10 per cent). Only after the principles of bank guarantee calculations and process of furnishing are finalised, will the amount be decided.

Indications are that the gas price effective April 1 will hover around $8/unit (gas is measured in million British thermal units). If the price is over $8.4/unit, bank guarantee on a quarterly basis could be in the range $100-$120 million, and this could go up to $130 million depending on the price.

While BP and Niko have expressed willingness to share the bank guarantee with RIL, the Oil Ministry’s proposal in the draft supplement agreement has caught all three partners by surprise, Prasad said.

The Ministry wants BP to justify how it can shoulder the bank guarantee when it was not party to the arbitration filed by RIL. The Indian firm is disputing the Ministry’s decision to disallow some of the expenditure incurred in the East Coast gas fields for producing less than what was proposed in the field development plan.

According to the players, as per the production sharing contract both BP and Niko are full joint venture partners in the block. The joint operating agreement between the contractors — BP, Niko and RIL — authorises the operator, in this case RIL, to act on behalf of the consortium. This includes dealing with the Centre.

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