Reliance Industries Ltd. (RIL), BP and NIKO, the contractors of KG-D6 block, have issued a notice of international arbitration to the Central Government to secure market price for gas as per the production sharing contract (PSC).

This follows continuing delay on the part of the government to notify gas price in accordance with the approved formula for the gas to be sold, the companies said in a joint statement. The contractor group said they were left with no other option but to pursue this course of action.

They said despite a clear-cut decision by the Cabinet in 2013 to revise gas price from April 1, 2014, as per the Rangarajan Committee formula, its implementation had been delayed by a directive of the Election Commission in view of the model code of conduct.

They said there had been no change in gas price from April 1, 2014, for the current production and the Ministry of Petroleum & Natural Gas (MoPNG) had been forcing them to keep selling gas at $4.2 per million metric British thermal unit (mmBtu) after April 1, 2014. “This is in contravention of the PSC and detrimental to the economic interests of the contractor group and the government. Under protest but in good faith we have kept supplying gas at $4.2 per mmBtu to the customers,” they said. “We requested the government to announce the gas prices as soon as the model code of conduct was over but MoPNG indicated (that) gas prices would only be announced for the second quarter 2014 (from July), completely ignoring the Cabinet decision to change prices from April 1, 2014,” they said.

“This contradictory move has resulted in a loss to the contractor group and the government of Rs.300 crore per month,” they added.

The partners said there had been no clarity on what the gas price would be in the future, failing which all their current and future investment plans have been in jeopardy.

“Without this clarity, the parties are unable to sanction planned investments of close to $4 billion this year. In addition, this will delay the ability of the parties to appraise and develop other significant discoveries made last year. Overall, the parties were planning to invest $8-10 billion in the next few years to significantly increase production from the KG-D6 block,” the statement added. The notice seeking implementation of “Domestic Natural Gas Pricing Guideline 2014” notified on January 10, 2014, was served on May 9, 2014. However, RIL, BP and Niko said they would work with the government to achieve a prompt and efficient resolution of this dispute.

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