The bank guarantee will be calculated quarterly as the gas price will change every three months, based on average international hub prices and the rate at which LNG (liquefied natural gas) is imported in India.
The bank guarantee will be about USD 90 million in the first quarter of fiscal 2014-15, considering an anticipated output of less than 8 million metric standard cubic meters per day (mmscmd) from D1&D3, after netting the excess royalty that RIL will pay at the higher price.
The official said it is a win-win situation for both sides. The bank guarantee secures the government's interests and the higher gas price protects the operator's interests.
If the hoarding allegations are true, the bank guarantees will be encashed, with interest, for the period from April 1 to the date the charges are proved.
From April 1, all domestic gas will be priced at an average of international hub prices and imported LNG costs. Prices will be revised quarterly and will be based on the previous one-year average.
RIL will have to furnish a bank guarantee of over USD 90 million, assuming a gas price of USD 8.4 per million Btu in April.
A lower gas price would have been the second penalty imposed by the Oil Ministry for RIL falling short of stated production targets. It had already levied a USD 1.8 billion penalty for the output drop, an issue that is in arbitration.
Gas production from the D1&D3 fields fell to 8.7 mmscmd this month from a peak of 54 mmscmd in March 2010.
Production has been below target since the latter half of fiscal 2010-11 and should currently have been 80 mmscmd, as per the 2006 investment plan.
Output from the MA oil and gas field in the KG-D6 block, too, has fallen over 62 per cent.
However, the ministry and the Directorate General of Hydrocarbons, the oil regulator, have agreed with RIL's reasoning that geological complexity was responsible for the drop and approved the higher price for the MA field's output.