Gas price set to be doubled from April 1

Govt notification on $8.4 a unit price likely by month-end

The price of domestic natural gas is set to double to around $8.4 a unit from April 1, with the government coming out with a notification on this by the end of this month. This is in spite of political pressure and speculation in the past few months  over the exact amount of increase.

However, a question mark remains on whether Niko Resources and BP, which partner Mukesh Ambani-promoted Reliance Industries Ltd (RIL) in the KG-D6 block, will be allowed to avail of a higher price for gas produced from the block.

“A call will be taken on RIL’s bank guarantee amount for KG-D6 gas after notification of the new price. A decision on participation of Niko and BP in the arbitration process (initiated by RIL against the government) could be left to the Supreme Court,” said an official.

Niko and BP might not get to increase the KG-D6 gas price unless they, too, furnish bank guarantees and become part of the arbitration process. “We have already sent the bank guarantee note for legal vetting,” the official added.

The Cabinet Committee on Economic Affairs had decided to allow RIL to avail of a higher price from April 1, provided the company gave a bank guarantee to cover the production shortfall (if the charge of intentional hoarding by it was proved) and signed a supplementary agreement with the government for the new dispensation. A KG-D6 management committee meeting could formalise this supplementary agreement on Monday.

The government had notified gas pricing guidelines on January 10. “The price will be in the range of $8.4 a million British thermal unit (mBtu), as cleared by the Cabinet. A committee that is to decide on pricing on a quarterly basis will take a decision by the end of March,” said an official close to the development. For every $1 price increase, the government will get $500 million in the form of royalty and other taxes.

A committee headed by Prime Minister’s Economic Advisory Council Chairman C Rangarajan had suggested a pricing formula by taking the average of long-term and spot global prices of liquefied natural gas.

After the pricing becomes clear, a three-member committee, comprising the director general of hydrocarbons, an additional secretary and a joint secretary in the petroleum ministry, will decide on the bank guarantee amount, taking the actual production shortfall into account.

On November 14 last year, the petroleum ministry had slapped an additional penalty of $792 million on RIL, taking the total penalty on the company since 2010-11 to $1.797 billion. In 2010-11 and 2011-12, the ministry had imposed a total penalty of $1.005 billion.

RIL’s arbitration process with the government has been stuck as the third arbitrator has yet to be named. Former chief justices S P Bharucha and V N Khare, nominated respectively by RIL and the government, are the other members of the three-member arbitration panel. “The Supreme Court will decide on the third arbitrator,” an RIL official said.

Stepping on the gas

• BP and Niko might not get higher price for KG-D6 gas, unless they furnish bank guarantees and become part of RIL’s arbitration process against the govt
• CCEA had decided to allow RIL a higher price for gas from April 1, provided the company gave a bank guarantee for the shortfall in KG-D6 production and signed a supplementary agreement with the govt for the new dispensation
• The government had on January 10 notified gas pricing guidelines on the basis of a formula notified by the Rangarajan committee
• On November 14 last year, the petroleum ministry had slapped an additional penalty of $792 mn on RIL, taking the total penalty since 2010-11 to $1.797 bn