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Can RIL hike its gas price? PMO seeks legal opinion

PMO has directed Petroleum Secretary G C Chaturvedi to consider obtaining legal opinion on the matter.

Written by Priyadarshi Siddhantha | New Delhi | Published: February 27, 2012 10:06:00 pm

Prime Minister Manmohan Singh’s Office has asked the Petroleum Ministry to legally examine whether the government can allow Mukesh Ambani-controlled Reliance Industries Limited (RIL) to increase the price of its gas from the KG D6 basin as against the current sale price of $4.2 per mmbtu (million metric British Thermal Units)decided by a Group of Ministers in October 2007.

Responding to a January 6 letter by RIL,the PMO has directed Petroleum Secretary G C Chaturvedi to “consider obtaining legal opinion on the matter and placing it before EGoM (Empowered Group of Ministers) on gas.” The EGoM on Gas Pricing and Commercial Utilisation is scheduled to meet in mid-March.

In its letter,RIL said it wanted to exercise its contractual right to market natural gas on the basis of arm’s length competitive sales to “benefit all parties under the Production Sharing Contract (PSC) including the government. It said the current price of KG D6 gas was “sub-market” and damaging to both the contractors and the government.

It asked for re-negotiating a revised formula with the Petroleum Ministry under the PSC and the New Exploration Licence Policy within 90 days (by April 6). Pointing out that it has invested about $8 billion in the KG D6 fields,RIL President and Chief Operating Officer (COO) B Ganguly said his company had a “legitimate expectation” of a free market with the ability to obtain competitive arms length prices as suggested by the PSC.

Ganguly has said that gas prices in India and globally have significantly increased. LNG prices that Reliance’s customers are paying exceed $17 per mmbtu,its letter said. This below-market price for natural gas unfairly discriminates against RIL,particularly as the government is contracting with foreign gas suppliers,either directly or through its agencies like Gas Authority of India Limited (GAIL) for gas supply within India at prices which are significantly higher than $ 4.2 per mbtu,Ganguly said.

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