Company to furnish $135 m bank guarantee every quarter

The Cabinet Committee on Economic Affairs (CCEA), on Thursday, approved giving Reliance Industries Ltd. (RIL) a higher price for natural gas from April next, subject to provision of furnishing around $135 million bank guarantee every quarter.

According to the proposal approved by the Cabinet, the bank guarantee will be encashed if it is proved that RIL hoarded gas or deliberately suppressed production at the Dhirubhai-1 and 3 (D1&D3) main gas fields in its eastern offshore KG-D6 block. The bank guarantee will cover the difference between the current gas price of $4.2 per million British thermal unit (mBtu). The new rate will come into effect from April 1.

The Petroleum Ministry had initially proposed to deny the new gas prices that will kick in from next fiscal till such time that RIL either made up for the shortfall in output during the past three fiscals, or it is proved that the company was not responsible for production falling below targets. In fact, this had held up the notification of the new gas pricing formula that would be applicable to all producers in the public and private sectors for all forms of gas produced.

The Petroleum Ministry has proposed that till the hoarding issue is resolved through arbitration and validation by independent international experts, RIL would have to keep furnishing the bank guarantee.

Recently, the Finance Ministry advocated some changes in the approved formula by excluding liquefied natural gas (LNG) purchases from the spot market, which, it said, was highly volatile. Prices of natural gas will be revised every quarter based on the average of the past four quarters, with a gap of one quarter. However, there was no word on the point raised by the Finance Ministry recently seeking a cap on the gas prices.

Gas production from the D1&D3 fields has fallen to less than 10 million metric standard cubic metres per day (mmscmd) from the peak of 54 mmscmd in March, 2010. Production has been lower than the target since the latter half of fiscal 2010-11, and it should currently have been 80 mmscmd, as per the 2006 investment plan. Output from the MA oil and gas field in the KG-D6 block, too, has fallen over 62 per cent.

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