Reliance Industries to sell gas at current rate as govt defers price revision

Mar 28 2014, 21:43 IST
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Reliance Industries can sell gas from KG-D6 only to customers identified by the government. Reliance Industries can sell gas from KG-D6 only to customers identified by the government.
SummaryReliance Industries can sell gas from KG-D6 only to customers identified by the government.

Reliance Industries will continue to sell natural gas from its eastern offshore KG-D6 fields at the current rate until the next government decides on a revision in prices.

Oil Minister M Veerappa Moily approved continuation of the existing rate of USD 4.2 per million British thermal units until the new government, which will be in place in May, decides on implementation of the Rangarajan formula.

He deferred the new pricing regime, which would have almost doubled gas rates from April 1, following advice from the Election Commission, oil ministry sources said.

The delay will not have a material bearing on 85 per cent of the gas produced in the country as firms such as ONGC can continue sales at USD 4.2 per mmBtu on existing contracts.

However, new contracts needed to be signed for KG-D6 as RIL's current sales pacts expire at the end of the month.

Sources said RIL and buyers of its KG-D6 gas settled most issues on the new sales pacts after a meeting called by the oil ministry.

Urea plants had flagged about 10 issues, including the duration of the contract and supplier liabilities, in the new Gas Sales and Purchase Agreement (GSPA) that RIL had proposed for the period starting April 1.

"Most of the issues have been resolved, barring one or two," a ministry official said.

RIL agreed to a five-year validity for the new GSPA, like the current one. It previously offered three-month contracts in line with the new gas pricing policy, where rates would have changed quarterly, based on average international hub prices and the cost of imported LNG in the preceding 12 months with a lag of one quarter.

This had been opposed by the 16 fertiliser units that buy KG-D6 gas.

To continue supplies from April 1, RIL has forwarded a simplified GSPA term sheet to buyers that would be valid till it is replaced by the GSPA.

The key features of the GSPA term sheet include a clause allowing buyers to pay only for the quantity supplied.

While the seller will be responsible for quality specs of gas, in times of constraint, gas will be supplied on a pro-rata basis to all fertiliser buyers.

Key terms like invoicing, payments and letters of credit are similar to the GSPA signed in 2009.

The official said the issue that remains to be resolved is the marketing margin to be charged by RIL.

RIL can sell gas from KG-D6 only to customers identified by the government. It supplies 12-13 million standard cubic meters of gas a day.

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