Hints at legal action if forced to pay $4.2 mbtu for the shortfall in KG D6 gas

Mukesh Ambani-owned Reliance Industries Limited (RIL) on Tuesday hit out at the ``unstable policy regime’’ prevailing in the oil and gas sector in the country and indicated that it could contemplate legal action if it was forced to pay $4.2 mbtu for the shortfall of gas from KG D6 after the new pricing regime takes shape from April 2014.

``This is the worst thing that can happen. I don’t know if that is true. If that is true, then that is a problem. We clearly will say it is violation of PSC. So whatever is the dispute resolution mechanism, we will have to resort to,’’ RIL executive director, P.M.S. Prasad said when asked what would (RIL) do if they are forced to sell gas at the old price. He was speaking to reporters on the sidelines of the energy summit organised by Federation of Indian Chamber of Commerce and Industry (FICCI),

As reports are circulating about the Petroleum Ministry preparing a note for the consideration of the Cabinet to force Reliance Industries to sell gas from KG-D6 block at old rates of $4.2 mbtu, Mr. Prasad said the government was not honouring signed contracts and extraneous factors were being brought into business. ``The country did not have a stable policy regime and this was responsible for exit of global energy giants like Royal Dutch Shell, BHP Biliton of Australia, Statoil of Norway and Brazil's Petrobras. It is there for everyone to see. We don’t have a stable policy regime which is very important if you expect any investor to come in and invest either in technology or in big risk investment that is required in oil and gas exploration, appraisal and development,’’ Mr. Prasad said.

He said the New Exploration Licensing Policy (NELP), under which RIL had won the Eastern offshore KG-D6 block in 2000, has been continuously eroded by taking away several rights of the companies. NELP provided for market-determined pricing of both oil and gas. While the government is identifying customers and nominating quantities to be sold, it is now mandating a price according to a formula given by a committee under Prime Minister's Chief Economic Advisor C. Rangarajan.

Mr. Prasad identified two reasons for the exit of global giant oil and gas companies from India; low prospects of Indian basins and fiscal instability.

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