Asserting that there is no case for revision in price of natural gas price, the Petroleum and Natural Gas Ministry has dismissed the demand by Mukesh Ambani-owned Reliance Industries Limited (RIL) to seek a revision of gas price for the KG-DWN-98/3 block on the East coast of Andhra Pradesh on the grounds that it (RIL) had agreed for revision of price after five years.
Replying to a January 2, 2012, letter by RIL president and COO (Business), B. Ganguly, the Petroleum Ministry has asserted that any revised price proposal could be examined by the government only after the expiry of 5 year period and the contract is requested to comply with the government decisions. The price of natural gas from the D-6 field was fixed at $4.2 per unit for a period of five years from the start of production. The price is up for revision only in 2014.
The letter by Director (Exploration), Parta S. Das, says the contract may also note that the government has approved the price formulae/basis in accordance with the provisions of Article 21 of the PSC, which reflects that contractor has the marketing freedom to sell its gas in consonance with the gas utilisation policy in the domestic market by the reckoning the government objective to develop its resources in the most efficient manner. “The report of the committee formulated by the Ministry of Petroleum and Natural Gas to formulate transparent guidelines for approving gas price formula/basis for giving government approval under PSCs, which has been referred to by RIL in its letter, also states a period of five years to be appropriate for any price review.’’
The Petroleum Ministry letter reminds RIL that while proposing the price formula/basis under KG-SWN-98/3 PSC dated May 18, 2007, RIL had stated that the term gas sale agreements which it is proposing to sign with the buyers has a provision for price validity for a period of 3 years and contractor had proposed approval of price formula/basis for period of 3 years. Subsequently, the proposal was considered by Empowered Group of Ministers headed by the then External Affairs Minister, Pranab Mukherjee, to examine and decide issues relating to gas pricing and commercial utilisation of gas under New Exploration Licensing policy (NELP).
The EGoM, after taking into account the reports submitted by the two committees – the committee headed by Dr. V. Rangarajan, PM’s Economic Advisory Council and Committee of Secretaries and the representatives of the various stakeholders, in its meeting held on September 12, 2007 approved a price formula/basis for KG-D6 gas for a period of 5 years since mostly all long-term natural gas contract has a price review clause every 5 years or more.
“Hence, any review of price formula/basis under KG-DWN-98/3 block could be considered by the government after a period of 5 years from commencement of supply,’’ the letter states.
Responding to the issue of RIL observation regarding selling gas at higher prices, the letter states that the EGoM while approving the price formula/basis, had decided that the supply to all consumers would be made at the approved price and further that in the case of RIL vs. RNRL, the courts – Bombay High Court and Supreme Court acknowledged the position of the government that contractor is required to sell the gas to all its customers at a price/formula approved by the government and that he can neither sell at a lower price or at a higher price.