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Reliance Industries today welcomed notification of new gas pricing formula that will almost double the fuel prices from April 1, and hoped the five-year transition will eventually lead to market prices.
"We welcome the adoption of Rangarajan Committee formula as a step in the right direction. However, gas sales under NELP have to be at competitive arms-length market prices. Accordingly, we hope the same momentum is maintained and, as per the PSC, gas markets are allowed to develop and transition to market price soon," a company spokesperson said.
The Ministry of Petroleum and Natural Gas had yesterday notified the 'Domestic Natural Gas Pricing Guidelines, 2014' that will apply to all natural gas produced domestically, irrespective of the source, whether conventional, shale or coal-bed methane (CBM) from April 1, 2014.
Accordingly, gas from April will be priced at an average price of liquefied natural gas (LNG) imports into India and benchmark global gas rates. This formula will be applicable for five years i.e. till March 31, 2019.
Barclays Equity Research estimated the price will be USD 8.3 per million British thermal unit in 2014-15 as against the current rate of USD 4.2. This will rise to USD 9.1 in the following year and then to USD 9.4 in 2016-17.
RIL will get the benefit of the new price for gas from its existing fields like MA in the KG-DWN-98/3 or KG-D6 block and new/upcoming ones like R-Series and satellite in the KG Basin block and the ones in North East Coast block NEC-25.
However, for the main Dhirubhai-1 and 3 (D1&D3) gas fields in KG-D6 block it will have to submit a bank guarantee to cover its liability if the charges of hoarding gas by deliberately producing less during last three years, are proved.
"In respect of D1 and D3 gas discoveries of Block KG-DWN-98/3, these guidelines shall be applicable subject to submission of bank guarantees in the manner to be notified separately," the notification had said yesterday.
The bank guarantee, which will be equivalent to the incremental revenue that RIL will get from the new gas price, will be encashed if it is proved that the company hoarded gas or deliberately suppressed production at the main D1&D3 fields in the eastern offshore KG-D6 block since 2010-11.