Ril, Bp And Niko Issue A Arbitration Notice To Govt Seeking Gas Price Implementation For Kgd6

  • 12-May-2014
  • Ril, Bp And Niko Issue A Arbitration Notice To Govt Seeking Gas Price Implementation For Kgd6

Reliance Industries, along with its partners BP and NIKO have issued a notice of arbitration to the government of India seeking implementation of the revised price for gas produced from the Krishna-Godavari basin (KG-D6).

The 'Domestic Natural Gas Pricing Guideline 2014' was notified on January 10, 2014 after the government approved the Rangarajan formula doubling gas prices to $8.4 per unit from April 1. While the change was criticised by political parties and consumers, RILBSE 3.14 % defended it saying that the new price is still below the price of imported liquefied natural gas (LNG). The Election Commission stopped the government from announcing the new price until the election code of conduct is in force.

"The continuing delay on part of the Government of India in notifying the price in accordance with the approved formula for the gas to be sold has left the parties with no other option but to pursue this course of action. Without this clarity, the parties are unable to sanction planned investments of close to $4 billion this year," Reliance IndustriesBSE 3.14 % said in a press statement on Saturday.

The Mukesh Ambani-led energy major said that the continued delay by the government in notifying the price as per the approved formula will also delay the ability of the three partners to appraise and develop other significant discoveries made last year. The statement said that RIL, BP and NIKO were planning an aggregate investment of $ 8-10 billion in the next few years to significantly increase production from the KGD6 block, for which they require clarity on pricing.

"The three parties shall endeavour to work with the government to achieve a prompt and efficient resolution of this dispute," the statement said.

RIL said that the circumstances has "forced" it to go for a legal recourse and thus it served the notice to the government on May 9. In 2007, the government fixed a price of $4.2 per unit for gas from the KG-D6 for the first five years of production. The fields started production on April 1, 2009 and therefore the price expired on March 31, 2014. The pricing for gas from the KGD6 basin, for which RIL and its partners are operators, has been debated for over two years with a cabinet decision which approved a Rangarajan Committee price formula in 2013.

The deferment of Gas Pricing on the behest of the Election Commission has triggered speculation about the quantum of the price increase and also on whether it would be done on a retrospective basis. The speculations on the new government's stance on the gas pricing has also aggravated concerns since the Bhartiya Janata Party, which has emerged as taking the lead in most opinion polls, has indicated that it may explore different pricing models.

The pricing of the gas would be crucial for the fertiliser and power industry, which are the key consumers of the gas from the KG-D6 basin. Output at the Dhirubhai-1 and 3 gas fields is about 8 million standard cubic meters a day versus RIL's target of 80 mmscmd by this time. RIL blames geological complexities such as unanticipated water and sand ingress for the output drop. But oil ministry and its technical arm DGH feel Reliance Industry did not drill the committed quota of wells and had imposed a penalty of $1.8 billion penalty on the company.

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