OilMin rejects change in RIL's KG-D6 gas price before Apr 2014

The Oil Ministry has rejected any change in price of Reliance Industries’ eastern offshore KG-D6 gas before April 2014 arguing that a higher price of fuel would result in $6.3 billion rise in subsidy burden.

In a note circulated to members of an Empowered Group of Ministers (EGoM) for comments, the ministry said RIL would get an additional $4.1 billion revenue if the rates are hiked from current $4.2 per million British thermal unit to import parity rates of $14.2-14.51 per mmBtu, sources said.

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While arguing that the government will get only $0.5 billion at current year production level of 25.08 million standard cubic meters per day, it did not mention that RIL had modified its January request for a price revision to clearly state it is seeking rate revision only from April 1, 2014 when the current price is due to expire.

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RIL first in June and then again on September 6 reiterated its demand for a price at par with the rate India is paying for import of liquefied natural gas (LNG) and gas imports from Turkmenistan, from April 1, 2014 when the current five-year period of $4.2 per mmBtu price expires.

Sources said the ministry in its October 10 note states that a $10 rise in gas price would result in increase in subsidy paid on fertiliser and power by $ 6.3 billion. The Ministry said the Attorney General has opined that “one cannot ignore the fact that price (of gas) has been fixed (at $4.2) and such fixation is effective up to April 2014.”

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AG, whose opinion was sought at the behest of EGoM, had stated that “revision of prices is advisable or not is a matter which the EGoM would have to determine not as a matter of law but as a matter of policy”.

AG also stated that “the Production Sharing Contract (PSC) did not mandate any fixed period during which the approved prices would remain valid but this has been agreed upon”. The EGoM had in 2007 fixed $4.2 per mmBtu price of KG-D6 gas for first five years of production. RIL began KG-D6 gas production in April 2009.

RIL in its price proposal submitted in June is seeking to price KG-D6 gas at 12.67 percent of JCC, or Japan Customs-Cleared crude, plus $0.26 per million British thermal unit. At $100 per barrel oil price, gas will cost $12.93 per mmBtu.

The formula proposed by RIL is the same at which Petronet LNG Ltd, the nation’s largest liquefied natural gas importer, buys 7.5 million tonnes per annum (30 million standard cubic meters per day) of LNG from RasGas of Qatar.

PTI