Cannot terminate RIL gas contract: Moily

Oil Minister Veerappa Moily has written to Prime Minister Manmohan Singh stating that the contract with Reliance Industries Ltd  (RIL) for KG-D6 gas fields cannot be terminated as the matter is pending before a tribunal.

Moily in his letter has explained how it would be economically unviable for not only Reliance Industries Ltd but also for the Oil and Natural Gas Corporation (ONGC) to produce gas if prices were not raised as agreed to after detailed deliberations in two Cabinet meetings. Moily said ONGC and Oil India Ltd (OIL) accounted for about 80 per cent of India’s gas production and that they would be the major beneficiaries of gas rates going up from $4.2 to $8.

“In view of the contractual provision under the PSC (production sharing contract), the government will not be able to terminate the contract on account of shortfall in production as the matter is pending before the arbitral tribunal,” Moily explained in his letter. “The fact is that the price formula affects the investment that will be undertaken in exploration and production and therefore the total volume of gas likely to be produced,” Moily said.

At current rate of $4.2, many projects especially in high potential basins of Krishna Godavari and Cauvery are not viable, he said adding, pricing gas at $4.2 will result in foregoing gas production from these blocks. The Prime Minister’s Office had earlier this month asked the ministry to give its view as soon as possible on a letter written by former Delhi chief minister Arvind Kejriwal in which he demanded that the decision to hike gas price extracted from KG basin be kept in abeyance till completion of a probe into the issue.

Kejriwal before resigning as the Chief Minister of Delhi had ordered the Anti-Corruption Bureau to register an FIR against Moily, RIL and its Chairman Mukesh Ambani for allegedly creating an artificial shortage of gas in the country and raising prices. Moily also said keeping domestic rates artificially low would create a “perverse” incentive for exploration.