Oilmin favoured Reliance despite Finmin's objection

Awarded company increased gas price

Oilmin favoured Reliance despite Finmin's objection


A day after the Cabinet decided to provide double the natural gas prices from the current $4.2 mmbtu to Reliance industries against a bank guarantee, the CPI leader Gurudas Dasgupta has written to Prime Minister Manmohan Singh urging him to terminate Reliance Industries’ (RIL) contract.

He has also thrown light on some startling facts on how the oil ministry chose to ignore some of the suggestions of the finance ministry which went against the company.

  The finance ministry had opposed the mechanism of bank guarantee by Reliance Industries as a condition for doubling of natural gas prices saying this could dilute the government's stated position before different arbitration proceedings. But, the petroleum ministry chose to ignore it and went ahead with its decision to award a hike in gas price to RIL from April next year saying it fully protected the interests of the government, Dasgupta said in his letter.

“Bank guarantee mechanism will dilute the government’s stated position before different arbitration proceedings that the shortfall in gas production is on account of the fault of the producer and not geological surprises and that the terms and conditions of production sharing contract have been violated by the producer,” said the terse comment from the finance ministry on the draft cabinet note advocating near doubling of gas prices to Reliance against a bank a guarantee, which was approved by the CCEA Thursday.

Deccan Herald has a copy of the draft Cabinet note, the comment of the finance ministry on it and the subsequent reply by the oil ministry.

The finance ministry had also suggested a cap or floor on gas prices to protect the interest of consumers as well the government in case of an unreasonable upswing in prices but the petroleum ministry replied, “The provision of cap will send a wrong signal to investors.” The finance ministry had also raised concerns on the impact of natural gas prices on power and fertiliser sectors.

 “It cannot be that gas producers will reap unlimited gains in the case of an upswing in global prices, any such upside has to be capped.

 “Power tariff and fertiliser prices as they are directly linked to the gas prices, such upward volatility may impact their prices and a steep rise in their prices will ultimately affect the common consumers by adding to the inflationary trends,” the finance ministry said.

 But the petroleum ministry replied, “The current formula (of pricing) links domestic prices to average price the producers obtain globally. Thereby, the movement of prices in the industry globally will be captured. Arbitrary cap/floor will interfere with such movements and disincentivise production of ‘tough gas’ and gas from frontier areas”.

 The CPI leader alleged that one of the Reliance companies, RGTIL, which handled its gas pipeline business, had earlier defaulted on its commitment regarding bank guarantee to the government.

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