Reliance Industries bank guarantee issue to be resolved in 15 days: Veerappa Moily

Nov 26 2013, 17:32 IST
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I am confident of settling the bank guarantee issue with Reliance within a fortnight: Veerappa Moily (Reuters) I am confident of settling the bank guarantee issue with Reliance within a fortnight: Veerappa Moily (Reuters)
SummaryThis step will enable Reliance Industries to charge higher gas price from April 1.

Petroleum Minister M Veerappa Moily today said he is confident of resolving the issue of securing USD 135 million in bank guarantees from Reliance Industries (RIL) within a fortnight to enable the company to charge higher gas price from April 1.

"I am confident of settling the bank guarantee issue with Reliance within a fortnight," Moily told reporters when asked if he would set a timeline for resolving the vexed matter.

According to the ministry, while the proposed bank guarantee would secure the government's interests on one hand, the higher pricing would protect the interests of RIL on the other.

The bank guarantee is being sought as the government feels that the steep fall in KGD6 gas output is not because of geological reasons, as is being claimed by RIL, but on account of the company's hoarding gas with to make a windfall gain from next April when gas prices will be doubled.

If the hoarding allegations are true, the bank guarantees would be encashed with interest for the period from April 1 to the date the charges are proved.

Moily met investors, financial institutions and analysts here last night ahead of the forthcoming NELP Round X auctions beginning mid-January.

He said unlike the flurry of negative news regarding the issues between the government and RIL, the only major issue is the arbitration settlement, which is pending with the courts now.

"We have, over the past few months, cleared as many as USD 7 billion worth investment proposals submitted by RIL," the minister said, adding that the media was only headlining the negative news.

Moily said he expects the Supreme Court to appoint a third arbitrator at the earliest so that the issues between the nation's largest private company and the government could be resolved at the earliest.

The ministry had recently asked RIL to provide a bank guarantee of USD 135 million every quarter to get a higher price for natural gas from April 1.

The guarantee will be encashed if it is proved that RIL hoarded gas or deliberately suppressed production at the Dhirubhai-1 and 3 (D1&D3) -- main gas fields in its Eastern offshore KG-D6 block.

It will cover the difference between the current gas price of USD 4.2 per million British thermal units and the proposed new rate of USD 8.4 per million Btu.

The ministry had earlier proposed that RIL should be forced to sell gas from the D1&D3 fields at the current rate until it is proved that the 80 per cent fall in output was due to natural reasons or it makes up for the shortfall in production since 2010-11.

The penalty in the form of the lower gas price would have been the second imposed by the ministry on RIL for falling short of the stated production targets. It had already levied a USD 1.8 billion penalty for the output drop and the issue is before arbitration.

Gas production from the D1&D3 fields has fallen to less than 10 million standard cubic metres per day from the peak of 54 mmscmd in March 2010.

Production has been lower than the target since the latter half of the 2010-11 fiscal and it 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 by over 62 per cent.

However, the ministry and the oil regulator – Directorate General of Hydrocarbons - have agreed with RIL's reasoning of geological complexity being responsible for the drop and has approved the higher price for the MA field's output.

Reliance may win India gas price hike with financial guarantees

(Reuters) Reliance Industries may be allowed to hike rates for its gas from April after it offered financial guarantees to the government to settle any claims against it over a shortfall in its gas output, the oil minister said.

In June, India approved a move to higher, market-related rates for locally-produced gas from April 2014, but the finance ministry later said prices for Reliance should be capped because the company's gas production from the offshore D6 block was far below its supply commitment.

Reliance, which operates the D6 block off India's eastern coast, has reported a sharp decline in gas output since 2010. Reliance and partner BP have cited geological complexities for the fall in output, but the oil regulator believes they failed to drill enough wells.

Falling output had already prompted the government to disallow proportionate cost recovery to Reliance, leading to arbitration proceedings over the issue.

"They have come forward with the proposal for bank guarantees. There are some arbitration proceedings pending. Till that is settled, they will submit bank guarantees," Oil Minister Veerappa Moily told reporters at an industry event on Tuesday in Mumbai.

Gas from D6 was earmarked for strategic domestic industries including fertiliser production, cooking gas and power, but has fallen so much that only some fertiliser plants now get supplies from the offshore block.

"We will put up a cabinet note in 10-15 days. Our ministry is concerned because we are keen to close the issue," he added.

A spokesman for Reliance, controlled by India's richest man, Mukesh Ambani, declined to comment on the matter.

The minister did not disclose the amount of guarantees, although media reports have earlier estimated them at $135 million per quarter.

India, which imports nearly 80 percent of its oil and a quarter of its gas requirement, hopes to launch a new round of auctions for oil and gas blocks by mid-January, Moily said.

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