Taking the government head on, Mukesh Ambani-led Reliance Industries Ltd (RIL) has charged the government of unfair discrimination against it by fixing a “sub-market (or below the market) price” for the gas being produced by the company from its KG-D6 block, which is also India largest gas producing block off the eastern coast.
Stating that the current market price of gas are no longer viable, RIL has sought an immediate revision in the domestic gas pricing formula and has given the government 90 days to reach an “amicable settlement” over the pricing of gas at competitive rates in India.
“This sub-market or below market price for natural gas unfairly discriminates against RIL, particularly as the government is contracting with foreign gas suppliers, either directly or through government agencies (such as GAIL, PLL, etc), for the supply of natural gas within India at prices which are significantly higher than $4.20/unit,” RIL said in a letter to the petroleum ministry on January 6.
Agencies such as GAIL and PLL are paying anywhere up to $14 for imported LNG. RIL, which is not allowed to buy KG-D6 gas for its own consumption, said it is paying $17 a unit for gas imported for its own consumption against the rate of $4.2 sold to consumers.
According to RIL’s letter, which the company said was on behalf of all contractors of KG-D6 including BP and Niko Resources, the consequences of this sub-market price are damaging to both contractors and the government.
Widely varying prices of natural gas in India and the government’s refusal to address such differential pricing creates a situation wherein, “there exists a controversy, difference and/or disagreement between us (contractors — RIL, BP and Niko) and the government over pricing of natural gas and our fair rights to determine those in accordance with our production sharing contract (PSC),” the company said.
“We wish to exercise our contractual right to market natural gas on the basis of arms length competitive sales to the benefit of all parties including the government. We propose discussing with you a revised price formula consistent with Article 21.6 of the PSC and with a view to reaching an amicable settlement within ninety (90) days of the date of this letter (dated January 6).”
The letter also stated that the current pricing formula for gas is no longer viable given the changed circumstances and is also contrary to the principles of the New Exploration and Licensing Policy and “is harmful to the development of the nation’s energy supply.”