Govt scrambles to fix RIL gas supply deals, weighs options
Mar 25 2014 , New Delhi
Moily to consult SG, AG on poll panel fiat
The existing gas supply and pricing contracts between the Mukesh Ambani-led RIL and various gas buyers will expire at the end of this month. The poll panel on Monday asked the government to defer a decision to double natural gas price to $8.4 per mmBtu from April 1. The oil ministry needed a clearance from the poll panel to notify the new price, as the election code of conduct has come into force in preparation for the April-May general election.
A top oil ministry official on Tuesday said the government was toying with the idea of extending the existing gas supply contracts with power and fertiliser firms by three months at the rate of $4.2 per mmBtu.
“A decision has to be taken on the contracts that expire on March 31. We need to decide the price. Whatever we decide, we would submit to the Supreme Court,” the official said, pleading anonymity.
“If the gas price hike is deferred till June, what could be the other options? One option could be to extend the existing contracts, as they are, for another 50–90 days,” the official added.
RIL executive director PMS Prasad met oil secretary Saurabh Chandra on Tuesday to explore various options within the framework of the Election Commission directive.
Unconfirmed reports said Reliance Industries chairman Mukesh Ambani had sought an appointment with outgoing prime minister Manmohan Singh. When contacted by Financial Chronicle, the PMO spokesperson refused to comment on a possible meeting between Ambani and the PM. RIL refused to discuss the fallout of the Election Commission directive.
These meetings assume significance, as the company has already issued “new term sheets” to the KG-D6 field gas consumers, doubling gas price to $8.4 per mmBtu with effect from April 1. On Monday, the company said the norms would be reviewed pending notification of the new gas price.
Shares of all gas producers declined in Mumbai trading on Tuesday, with the RIL stock plunging as much as 3.5 per cent in intra-day trade before closing with 2.87 per cent loss at Rs 878.65.
Among the state-owned oil companies, Oil India lost 2.75 per cent to Rs 471.70 and ONGC lost 0.34 per cent to Rs 320.10. Shares of public sector gas transmission firm GAIL fell by 0.62 per cent to Rs 368.05.
Outgoing oil minister M Veerappa Moily, who was in Bangalore on Tuesday, said top law officers would examine the Election Commission directive before the next course of action is decided.
“We are examining it. And because the matter is also in the Supreme Court of India, we would like our solicitor general or attorney general to examine it. I don’t want to comment further on the issue,” news agency PTI quoted him as saying.
Moily said the government was renewing gas supplies to fertiliser plants and added that delaying the rate hike would have implications on the investment climate and government subsidies, and absence of remunerative prices would hit gas output.
“While the impact of the EC directive on RIL is less significant, this can cut earnings per share of ONGC and Oil India by up to 6 per cent this financial year,” Barclays analyst Somshankar Sinha said in a note. However, he retained overweight rating on ONGC and advised accumulation of the stock on any short-term weakness.
Sinha said the move would help gas users such as GAIL, and allow the government more time to address affordability issues for the power sector, which could have proved to be a near-term headwind for Petronet’s volumes.
Kotak Institutional Equities said low natural gas price would prevent meaningful investment in the gas sector.
In a note to stock exchanges, RIL said the concerns over the rise in fertiliser prices was misconceived and cited that fertiliser plants pay $18 per mmBtu for imported re-gasified LNG against $8 per mmBtu it would have charged.
On Tuesday, the Supreme Court resumed hearing on a petition by CPI leader Gurudas Dasgupta and an NGO, who have challenged the proposed gas price hike.
Industry body Confederation of Indian Industry said the EC directive would go against the stated government policy and adversely impact investment decisions in the oil and gas sector.
“We would like to reiterate that it is only a computation decision where the formula is pre-fixed on the basis of a cabinet decision. The decision to hold back price revision could have a long-term impact on the investment climate in this crucial sector,” said CII president and Infosys chief Kris Gopalakrishnan.