RIL to supply gas at old rate, no deal yet

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Reliance Industries has agreed to temporarily supply gas to fertiliser plants at current prices, although the two sides have failed to sign new deals, a top official at the fertiliser ministry said.

The energy group five-year gas supply agreements with sectors including fertiliser makers and power producers expired on Monday, requiring buyers to sign new contracts for supplies from its D6 block in the Krishna Godavari basin.

“Reliance will continue to supply gas at $4.20 (per million British thermal units). The Fertiliser Association of India (FAI) and RIL will sit together and finalise the (next contracts) agreements as early as possible,” fertiliser secretary Shaktikanta Das said.

Das did not elaborate on the duration or other terms of potential new contracts between Reliance and the fertiliser companies.

RIL and the fertiliser producers had an almost five-hour-long marathon meeting, but failed to agree on some key issues.

The gas explorer wanted the 16 fertiliser companies to financially secure payments for about 13 million standard cubic metres per day of gas they buy at $8.34.

But the fertiliser units said since the new rate was not applicable and the oil ministry had ordered the supply of gas at the existing rate while the model code of conduct was in place, they would provide letters of credit at $4.2.

Das said the new gas sale and purchase agreement (GSPA) was under discussion. “Both Reliance and FAI have agreed that they would sit together and finalise it soon,” he added.

Sources said RIL and the gas buyers had settled most issues on the new sales pacts at an earlier meeting but the issue of securitisation had remained unresolved.

Urea plants had flagged about 10 issues in the new GSPA that RIL had proposed for the period starting April 1, including duration of the contracts and supplier liabilities. RIL agreed to a five-year validity for the new GSPA, like the current one.

It previously offered three-month contracts in line with the new gas pricing policy, where rates would have changed quarterly, based on the average international hub prices and the cost of imported LNG in the preceding 12 months with a lag of one quarter. This was opposed by the fertiliser units.

To continue supplies from April 1, RIL had forwarded a simplified GSPA term sheet to the gas buyers that would be valid till it is replaced by the GSPA. The key features include a clause allowing buyers to pay only for the quantity supplied.

While the seller will be responsible for quality specs of gas, in times of constraint, gas will be supplied on a pro-rata basis to all fertiliser buyers. Key terms like invoicing, payments and letters of credit are similar to the GSPA signed in 2009.

The official said another issue that remained to be resolved was the marketing margin to be charged by RIL.

The cabinet last year approved a formula that linked prices of locally produced gas with global benchmarks, which would have nearly doubled gas prices from current levels from Tuesday.

The Election Commission asked the government to defer the price increase until the completion of the five-week general election in the middle of May.

The opposition Bharatiya Janata Party (BJP) has said it will review the gas pricing formula if it is elected.

“We will pay the marketing margins and gas prices from the date as may be notified by the (new) government,” Satish Chander, director general of FAI, said. He said he hoped the deadlock over the contracts would end soon.

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  • The govt needs to spend its cash without being frugal or wasteful

    Increased government spending can provide a temporary stimulus to demand and output. This is Economics 101.


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