Reliance Industries Ltd (RIL) has challenged the oil ministry's penalty of over $1 billion for failing to meet gas output targets. Sources in the company said the ministry has not honoured contractual commitments on natural gas pricing at market rates, which is much higher.
"Since costs are market driven, gas prices also need to be market driven similar to oil prices," said the source from the company.
The source pointed out RIL had an approval from the government to fix the gas from KG-D6 to be priced at $4.205 per million British thermal unit. The approval further stated that RIL was to get a higher price than the approved rate, the higher would be used for calculation of profit petroleum etc. This essentially meant that the government was open to RIL selling gas at higher rates but later went back on it.
"The government has to adopt target subsidies instead of penalising risk-taking private investors by artificially suppressing prices," said the source.
The source said the fall in output two years ago was due to geological complexities.