Gas pricing: Reliance Industries not to withdraw arbitration notice

Aug 25 2014, 09:18 IST
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Reliance Industries chose not to withdraw an arbitration notice sent to the Centre in May Reliance Industries chose not to withdraw an arbitration notice sent to the Centre in May
SummaryReliance Industries tells Oil Ministry that it can't be forced to sell gas below market price.

While a secretaries’ panel set up last week is about to go into the vexed issue of gas pricing, Reliance Industries chose not to withdraw an arbitration notice sent to the Centre in May for the latter’s failure to keep the promise of a new gas price from April. RIL has written to the petroleum ministry contending that the government is not within its right to compel it to sell gas at below market price.

The company said it was wrong to assert that the government has an “unfettered right to fix the price of KG-D6 gas” under a production sharing contract (PSC). On the contrary, it said, the contract provided for the opposite. In particular, it argued, Article 21.6.1 of the PSC “commands” the contractor to sell gas at competitively-determined, arm’s length price.

Although Article 21.6.3 of the PSC obliges the Centre to “approve” the price proposed by the contractor, it was only meant to ensure that the contractor do not sell the gas below the market price, it said in the latest communication to the ministry.

RIL’s stand signals that it would not mind being in a collision course with the government on the issue.

Separately, another arbitration is taking place between RIL and the government over the alleged suppression of production at the KG-D6 block. The government had slapped penalty notices of $2.3 billion on RIL for the production being below what was promised in the field development plan.

The government had in July told RIL and its partners BP and Niko Resources in the development of the once-prolific block, to withdraw the arbitration notice they had sent in May. The companies had said their investment plans were thwarted by the delay in implementing a new gas price.

It may be recalled that the UPA government had approved pricing norms on the line of the Rangarajan formula that would have doubled the domestic gas price from the current $4.2/mmBtu, but could not implement the new price due to an Election Commission diktat.

While the Modi government said it needed to comprehensively review the issue before taking a decision, petroleum minister Dharmendra Pradhan told Rajya Sabha recently that a formula that factors in every stake-holder’s interest would be announced by September 30.

The Ambani firm is of the opinion that government is “misreading” the Supreme Court judgment in the case between RIL and Anil Ambani-controlled RNRL which said natural resources belonged to the people of India

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