The Petroleum Ministry is planning to approach the Union Cabinet to allow Reliance Industries Ltd. (RIL) to double the price of gas from the KG D6 fields, provided it gives a bank guarantee, which can be encashed in case it is proved by experts later that the company is hoarding gas in the block.

Oil Ministry officials said Petroleum Minister Veerappa Moily was likely to approach the Cabinet Committee on Economic Affairs soon with the said proposal. The Petroleum Ministry had, in a draft note to the Cabinet, proposed that RIL be forced to sell gas from D1 and D3 gas fields in the KG-D6 block at the current rate of $4.2 per mmBtu (million metric British thermal unit) till it was proved that the over 80 per cent fall in output was due to natural reasons, or the company made up for producing less than the target since 2010-11.

However, legal experts within the government pointed out that it would be difficult for the government to make up for the difference between the current rate and the new rate (likely to be around $8 per mmBtu plus for all domestic gas from April 1 next) if at a later date it was proved that the fall in output was actually due to geological reasons.

Officials pointed out that verification of RIL’s claims through arbitration or appointment of expert panel would take a long time, and could cast uncertainty over the whole matter.

Ministry officials said one opinion was to charge a higher price for the consumers and pay $4.2 mmbtu to RIL and keep the balance in an escrow account till things cleared.

However, the production sharing contracts have no such provision for escrow accounts.

The other option is to allow RIL to charge the increased price provided the company gives a bank guarantee (the amount to be decided by the Union Cabinet), which could be encashed if the charge of hoarding gas is proved.

The gas output from the D1 and D3 fields has fallen to 10 million standard cubic metres per day (mscmd) from the peak of 54 mscmd achieved in March, 2010. Production has been lower than the target since the latter half of 2010-11, and it should have now been 80 mscmd as per the 2006 investment plan. Production from MA oil and gas field in the same KG-D6 block, too, has fallen by over 62 per cent, but the Petroleum Ministry and the Director General of Hydrocarbons have agreed with RIL’s reasoning of geological complexity being responsible for the same, and has approved the higher price for the same from April.

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