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KG row: DGH nixes RIL's price plan

Oil regulator insists it should be linked to current market price of $4.2 per unit, Ambani wants more. Anupama Airy reports.

business Updated: Jan 16, 2012 23:21 IST
Anupama Airy

The next round of gas pricing row has begun.

In what is seen as another big blow for Mukesh Ambani-led Reliance Industries Ltd’s (RIL’s) next wave of gas field development plans in its KG-D6 block, the Directorate General of Hydrocarbons (DGH) has refused to consider viability of these plans at a price other than the currently approved $4.2 per unit.

These plans involve the development of four satellite and other associated fields within the block, would result in gas production sometime in 2015. RIL had sought clearance from the government for its development plans stating that pricing of gas will be based on best available competitive market prices and not the existing price of $4.2 per unit approved by the government in 2007 and is valid till 2012-13.

However, the DGH has disapproved of RIL’s plans and even cancelled a recent meeting at the last minute that was being convened to approve the company’s satellite field development plans.

According to the DGH, the price of gas from these fields should also be linked to the current price of $4.2 per unit.

RIL and its partner BP have now written to petroleum minister Jaipal Reddy stating that in today’s market, there are a range of gas prices existing — starting from $4.2 going up to $18 per mmbtu — and that it sees “no reason for delay or denial of approval” of its field development plans on the ground of project lacking commercial viability.

RIL’s spokesperson did not respond to email and text message from HT.

“It is unfair for the DGH to consider viability of its project at the price of $4.2 per unit, especially when the project is unlikely to commence anytime before 2015,” company sources said. “This (fixing the price again at $4.2 per unit for new development plans) is against the provisions of the production sharing contract.”

RIL said it has invested vast amount of risk capital in exploring and establishing gas reserves under the terms of the PSC on the basis of international competitive offers invited by the government.

“Management committee cannot take away or in any way restrict our right to develop reserves that have been discovered by us as contractor,” RIL told the ministry.

“The PSC gives the contractor the right to try and recover the sums it has spent on exploration and all other petroleum operations through development and production of all such Discoveries as have been assessed commercial by us,” RIL added.

The PSC, RIL said, gives it full freedom to market the gas at the best available competitive arms length prices.