Reliance insists on new gas price from fertiliser firms

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Reliance Industries has contested an agreement that it said to have reached with several fertiliser companies earlier to continue supply of natural gas at $4.2 a million metric British thermal unit (mmBtu) beyond March 31, when the previous supply deals expired.

RIL has demanded that the fertiliser firms agree to the new term sheet and revised price, effective from April 1, without further delay to enable it to keep supplying gas.

In a letter, dated April 8, which is in possession of Financial Chronicle, RIL has told the fertiliser companies "the formula leading to a gas price of $4.205 mmBtu was valid only till March 31. By a notification, dated January 10, 2014, published in the Gazette of India on January 17, 2014, the Government of India has notified a new gas price formula. Clearly, with effect from April 1, a revised price is applicable to all gas supplied by us and accepted by you," the company wrote.

RIL supplies around 13 million standard cubic metres of gas from its KG-D6 field to major fertiliser firms every day.

Till March 31, these firms paid financial securities to guarantee payment at $4.205 per mmBtu. RIL has now demanded security for the differential with a new price, which is yet to be fixed.

“We have been supplying gas to your plant based on the terms offered in our letter, dated April 1, pending the execution of the term sheet provided by us," the letter noted, adding that the companies should agree to the term sheet provided and provide security as stipulated without further delay.

Queries mailed to RIL spokesperson by this paper elicited no response.

The government had fixed the gas price at $4.205 per mmBtu for the first five years from April 2009, when production began at the KG-D6 fields. The order expired on March 31, 2014.

The Union cabinet in December, 2013 approved a new formula for gas pricing as suggested by the Rangarajan committee and notified the same on January 10. But before the government could notify a specific price based on this formula, the national elections were announced bringing the election code of conduct into force. The oil ministry approached the election commission for permission to announce the gas price, but the poll panel asked the government to hold the announcement till mid-May.

RIL’s dispute with the fertiliser firms is over the rate at which gas consumers should provide payment guarantees. Some projections show that the price would have risen to $8.34 had the election commission not postponed the implementation of the new formula. The RIL letter contests the reported agreement between the fertiliser companies and RIL following a series of meetings held at the ministry of petroleum and natural gas and at the department of fertilisers.

It said the descriptions given by the fertiliser companies were inaccurate and did not capture the discussions at the meetings, which in any case were “inconclusive.”

RIL claims the conditions under which gas is sold was a matter of bilateral discussion and the fertiliser firms will have to provide security for payment for the price differential. “These terms and conditions include your providing us the security for the payment of the price differential between the previous price, which expired on March 31, 2014, and the price applicable effective April 1, 2014,” RIL wrote.

Experts in the gas industry said it would not be possible for RIL to get the new price from the fertiliser firms as a new price has not yet been notified, which can be done only by the government. Unless that happens, RIL will be bound by the prevailing rate of $4.205 per mmBtu. However, they said there was ground for gas price hike as the fertiliser firms were anyway importing LNG at double the price that RIL is demanding.

A higher gas price will lead many firms to go whole hog on exploration, which they have held up till the price gets attractive for more exploration and production.

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