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HindustanTimes Tue,30 Sep 2014

RIL wants higher price for gas, upset with $8.4/unit

Anupama Airy, Hindustan Times  New Delhi, July 23, 2014
First Published: 00:17 IST(23/7/2014) | Last Updated: 01:31 IST(23/7/2014)

Mukesh Ambani-led Reliance Industries Ltd (RIL) has told the petroleum ministry that the new price of $8.4 a unit for gas is not the right price and was “well below the arm’s length price.” The company has also sought a price correction from 2012, thereby rejecting wholesale the $4.2 per unit being paid to it for the past five years.

Arm’s length price refers to the prevalent market price or that derived in line with market realities.

“This price (of $8.4 a unit) is well below the arm’s length price for gas... The claimants (RIL and its partners BP and Niko) do not regard this revised figure of $8.4 a unit, to reflect the arm’s length price,” RIL said in a recent letter to the government.

The RIL spokesperson refused to comment. A senior petroleum ministry official, however, told HT that a review of the new price hike was already underway and since the matter was part of an arbitration, it would be discussed at the appropriate forum.

“Given the GOI’s failure to respect the terms of the parties’ contract ... and its continued reluctance to discharge its contractual obligations in the manner suggested by the contractor (RIL) in 2012..., the claimants (RIL, BP and Niko) claim that they have been denied market price since no later than January 2012 and are entitled to damages arising from this,” RIL said in the letter.

“The government’s failure to approve a market-based price formula for sales of gas occurring after April 1, 2014 constitutes a continuing breach of the production sharing contract and claimants are entitled to sell the gas produced and saved from block KG-D6 at competitively-determined market prices forthwith,” it added.

RIL’s letter follows the Narendra Modi-led government’s decision to review and defer by three months the new gas price of $8.4 a unit that was fixed by the previous UPA government in line with a formula proposed an expert panel headed by C Rangarajan.

In a recent interview to HT, petroleum minister Dharmendra Pradhan had conveyed his government’s reluctance to accept the new has price of $8.4 a unit, questioning the intent of the expert panel to use global benchmarks to arrive at price of gas produced and sold in India.

“Why should we fix our natural gas prices based on benchmarks linked to developed markets such as Japan,” he had said.

“These resources belong to our people. Why are we so worried about what well-head price exists in other countries without worrying about the end-use price prevailing in our country?” he had questioned.

RIL and its partners—BP and Niko — have already initiated arbitration proceedings against the government for delaying the hike in natural gas prices.

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