Clearing the decks for notification of the new gas pricing regime from April 2014, the Finance Ministry has given an interim approval to the Petroleum Ministry’s proposal to ask Mukesh Ambani-owned Reliance Industries Limited (RIL) to furnish a bank guarantee in return for allowing it to raise gas prices to cover the liability in case gas hoarding charges are proved.

However, at the same time, the Finance Ministry has asked the Petroleum Ministry to adopt a cautious approach while accepting a bank guarantee from RIL cautioning that such a move should not dilute the position of the government in the ongoing arbitration proceedings against RIL.

According to the draft Cabinet proposal, the bank guarantee will be encashed if it is proved that the company hoarded gas or deliberately suppressed production at the main Dhirubhai-1 and 3 (D1&D3) fields in the eastern offshore KG-D6 block.

"We have received comments from the Finance Ministry on the draft Cabinet note floated on the KG-D6 gas pricing issue. The comments were received 2-3 days back. I don't know what they have said as I have not seen them yet,’’ Petroleum Secretary Vivek Rae told reporters on sidelines of the 12th Petro India Conference here.

According to the Petroleum Ministry officials who have accessed the note, the Finance Ministry is worried on the account that in case arbitration lingers on for an indefinite period, the bank guarantee may run into around $9 billion and the BG would need to be monitored closely by the Ministry so that they remain valid until the completion of the arbitration process.

Further, the Finance Ministry has also enquired on likely course of action planned to be taken by the government in case RIL defaults on fulfilling its BG obligations. ``Since the arbitration proceedings are still in progress and some investments are in dispute, the Finance Ministry is circumspect on how the investment multiple (IM) will be calculated and the consequential share of profit petroleum and revenues from tax and royalty on account of the enhanced price of gas, if any,’’ the note has added, the official said.

RIL is countering government stand that non-drilling of committed wells led to 80 per cent fall in output by saying citing geological complexities and lower than anticipated reserves. The government in June approved pricing of all domestically produced natural gas, both for private and public sector firms, at an average of global gas hub rates and imported LNG price. The rate in April when the new pricing will be implemented will almost double from the present $4.2 mbtu.

Earlier, Planning Commission and the Law Ministry have both backed the bank guarantee as the possible resolution to the issue that had threatened to cast a shadow on the forthcoming round of auction of oil and gas blocks under New Exploration Licensing Policy (NELP). The bank guarantee will cover the difference between the current gas price of $4.2 and the new rate which will come into effect from April 1.