BP, Niko?s wait for higher gas price may get longer

The hopes of Reliance Industries’ (RIL) foreign partners in KG-D6 ? UK-based BP and Canada?s Niko Resources ? to get a higher gas price now rests with the law ministry headed by Ravi Shankar Prasad.

This is because the ministry under Kapil Sibal had sent back the file to the nodal petroleum ministry ‘without any firm opinion’ on the issue, a senior ministry official told FE.

Former petroleum minister M Veerappa Moily had sought the law ministry opinion on whether the foreign companies’ supplementary notices of arbitration (NoAs) to the government against the $1.8-billion penalty for the fall in the KG-D6 gas output could be accepted or not.

“We would re-send the file for the law ministry’s view after discussing with the new minister (Dharmendra Pradhan),? a petroleum ministry official said. The petroleum ministry wants the law ministry’s opinion to decide if the NoAs are in accordance to the production-sharing contract.

In March, BP and Niko sent notices. RIL, the lead partner in the consortium that explores the KG-D6 block, had issued an NoA to the government two years ago and is therefore in a position to raise the gas price as per the Rangarajan formula (currently deferred by the Election Commission), provided the company gives bank sureties equivalent to the resultant incremental revenue.

The ministry has now prepared a new cabinet note on the gas pricing regime to be implemented from July 1. This would be taken up by now by Pradhan.

The contentious issue is that the companies claim that the production-sharing contract (PSC) do not have any provision for levying a penalty if production drops and do not match the projects made as per the field development programme.

BP and Niko, who are also partners in the consortium that operates the gas block, have been left high and dry as the government had refused to recognise them as parties to the ongoing arbitration. And therefore they were not eligible for higher gas price.

This marks a departure from earlier stand of BP and Niko where they said that the arbitration initiated by RIL was as the contractor for KG-D6 block and as partners to the Indian company in the production-sharing contract, they were ipso facto represented by RIL.