EGoM can take call on KG-D6 gas price hike: A-G advice

The current price of $4.2 per mmbtu has been decided by a GoM in October 2007 and is valid till 2014.

Attorney General Goolam E Vahanvati has lobbed the ball back to the Empowered Group of Ministers (EGoM) on the issue of taking a call on whether prices of gas from KG-D6 basin in Andhra Pradesh can be hiked in line with the demand made by Reliance Industries Limited (RIL) the operator of the block.

Vahanvatis advice to the oil ministry,which veers around to the view that the EGoM should take a call on the issue as a matter of policy,comes in the wake of the Prime Ministers Offices directive to petroleum secretary G C Chaturvedi to seek a legal opinion on whether the government can allow the Mukesh Ambani-controlled RIL to increase the price of its KG-D6 gas from the current $4.2 per mmbtu (million metric British Thermal Units).

Leaving the onus on the EGoM,the Attorney General said,Whether in the circumstances of this case,revision of prices is advisable or not is a matter which the EGoM would have to determine not as a matter of law but as a matter of policy as is clear from the (EGoMs) query itself,which poses the question as to whether this an advisable course of action.

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On the petroleum ministrys query whether gas prices can be revised midway through the five years approved in the Production Sharing Contract (PSC) or the contractor can be allowed to undertake fresh price discovery on a new formula,Vahanvati argued that this depends on whether market prices are ascertainable and,if they are,whether such prices are dependable and authentic. If such prices are available,an appropriate formula may be worked out accordingly, he has advised. However,the Attorney General said the PSC in the context of the New Exploration Licencing Policy,did not mandate any fixed period during which the approved prices would remain valid,but this has been agreed upon. The current price of $4.2 per mmbtu has been decided by a GoM in October 2007 and is valid till 2014.

In a letter to the PMO in January,RIL President and Chief Operating Officer (COO) B Ganguly said it wanted to exercise its contractual right to market natural gas on the basis of arms 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 NELP.

The Attorney General advised against referring the matter of price discovery of KG D6 gas to the Petroleum and Natural Gas Regulatory Board (PNGRB) as the matter is already being examined by the EGoM. He said PNGRB cannot be vested with powers by the central to carry out the latters functions under the PSC. Amid the tug-of-war on prices,RIL has announced that the output from its KG-D6 basin has dipped to about 32.66 million standard cubic meters per day.