Ambiguous Oil Min order may lead to KG-D6 price revision

Ambiguous Oil Min order may lead to KG-D6 price revision

While the Oil Ministry gears up to reject Reliance Industries' demand for a higher gas price, its order fixing USD 4.20 per mmBtu as price of KG-D6 gas may be ambiguous offering room for revision in rates before the set five-year term.

The Oil Ministry had on October 10, 2007, written to RIL fixing USD 4.20 per million British thermal unit as the price of gas from KG-D6 fields for first five years of production, informed sources said.

The letter however did not stop at this and went on to state that if RIL was to realise a price higher than USD 4.20 per mmBtu, that rate would be used for determining government's take from KG-D6 block.

"If the actual price at which any supplies made to any consumer happens to be higher than the one arrived at by (the formula approved by the Empowered Group of Ministers), then the higher price shall be taken for purposes of the Government take for that quantity," the ministry wrote to RIL on October 10, 2007.

It is perplexing why this clause was inserted if the gas price was to be USD 4.2 per mmBtu for five years as the Oil Ministry is insisting now.

Sources said the ministry's has prepared a draft reply rejecting RIL's demand for revision in KG-D6 price citing a letter the company wrote on October 24, 2007 accepting the terms set out in the government's October 10, 2007 letter.

But the ministry's October 10, 2007 letter alluding to RIL realising a price higher than the one fixed by the EGoM headed by the then External Affairs Minister Pranab Mukherjee, is equivocal.

This may be the reason behind RIL's January 6 letter to the ministry seeking revision of "discriminatory" and "sub-market" price for KG-D6, where gas production started in April 2009.

It cited liquefied natural gas (LNG) being imported by public sector firms at triple the KG-D6 price to seek a revision.

Sources said the ministry's draft rejecting reopening of price before 2014, also relies on the Supreme Court's May 7, 2010 judgement in the gas row between RIL and Anil Ambani's RNRL that stated that government alone has the right to fix the selling price of gas from all fields including KG-D6.

RIL, they said, has never questioned the right of the government to approve the gas price and it does not propose to sell fuel without government approval. It has approached the ministry with a request for review of the gas price and would sell the fuel at higher rates only after its nod.

Stating that the current price of gas was no longer viable, the company had in the January 6 given the government 90 days to reach an "amicable settlement" over gas pricing.

Under the dispute resolution process detailed in the Production Sharing Contract, parties are required to try for reconciliation of differences for three months before heading for arbitration. RIL may be thinking of arbitration on the issue.