The Cabinet on Thursday gave a major relief to Reliance Industries Ltd allowing it to charge a higher gas price of a likely $8.4 per million British thermal unit from next April, in return for a bank guarantee.
The bank guarantee, equivalent to the incremental revenue that RIL will get from the new gas price, would be encashed if it is proved that the company hoarded gas or deliberately suppressed production at D1 and D3 fields in the KG-D6 block since 2010-11.
The new prices, based on the C Rangarajan formula, can spur investment in the sector that has been crippled by the stand-off.
The government plans to bid out fresh blocks under the tenth round of its 'new exploration licensing policy' was held up as companies wanted to know how this dispute would pan out.
While RIL is yet to reply formally, a company source said the proposal for the bank guarantee is workable. RIL chief Mukesh Ambani and his joint venture partner BP had held several rounds of meetings with the government this year to break the deadlock.
Also, while the arbitration case between the two against the penalties sought to be levied by the government would continue, by resolving the gas price issue the differences has now got narrowed.
Prodded by the finance ministry, the petroleum ministry had initially proposed to deny the new gas price to RIL till such time it either made up for the shortfall in output or it is proved that the company was not responsible for production falling below targets.
The total shortfall in KG-D6 production in the last four years was 154 million standard cubic metres per day.
The Cabinet, in June, approved the formula which averages global gas hub rates and the price at which India imports LNG. But its implementation got delayed as the Comptroller and Auditor General in its audit of the KG-D6 block had earlier asked the government to ensure that RIL delivers upon the committed shortfall at the lower price agreed upon, before it was allowed to migrate to the new price for fresh output.
... contd.
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