KG gas row: RIL says it will fight for free market price

Written by fe Bureau | New Delhi | Updated: Apr 24 2014, 19:27pm hrs
The Mukesh Ambani-led Reliance Industries on Wednesday told the Supreme Court that it will raise the gas pricing issue in its arbitration with the government over alleged under-production at the KG-D6 field and "fight for a free market price".

Till now, RIL has been wanting to resolve the dispute with the government through arbitration relating to penalties to the tune of $1.8 billion (in the form of disallowing cost recovery) for not meeting the committed production targets.

It may be noted that an Election Commission directive forced the government to defer implementation of a Cabinet decision to revise the gas price as per Rangarajan formula, effective April 1. Had the decision been implemented, the gas price would have nearly doubled from $4.2 per mmBtu to $8.4.

Arguing before a bench headed Justice BS Chauhan, senior counsel Harish Salve refuted allegations that RIL was deliberately suppressing production in KG basin in anticipation of a higher gas price. Any such allegation betrays complete disregard of the technical and technological realities of the process of production of natural gas from these reservoirs, Salve said. An increase in pressure cannot take place. As the reservoir is being evacuated continuously, even if there is water support, it will never come at a pressure higher than the existing pressure of the reservoir, Salve said.

RIL submitted that the pace of production of gas from a reservoir has to be planned at the stage of development plan, taking into account the pressure in the wells and the anticipation of the decline. Once production begins and wells start producing gas, it is not possible to shut down the wells or generally reduce the rate of production on which basis the reservoir has been developed without the risk of losing gas. If the contractor loses gas, it loses the source of revenue and of its profits. Any contractor would rather sell gas at a lower price than losing it to the elements, the counsel said.