According to the proposal, the bank guarantee would be worth the incremental revenue that RIL would get from the new gas price, which would be double the present cost of $4.2 per unit. The government would encash the guarantee if it is proven later that the company had intentionally reduced output since 2010-11 to reap benefit of a higher price.
The decision would clearly come as a breather for RIL, which had seen gas production fr om its three producing fields in the block decline by nearly 80% of the quantity it had promised, while seeking approval for investing $8.8 billion in the fields. This had led to the view in the government that it should be denied the benefit of higher prices.
After the government cleared the Rangarajan formula for pricing gas from all domestic fields, the finance ministry proposed that RIL be denied the benefit of the higher price till such time it either made up for the supply shortfall during the last three financial years or it is proven that the decline was not because of the company's fault.The issue had held up notification of the new gas pricing formula. As a way out, it was proposed that RIL and its partners BP Plc of the UK and Canada's Niko Resources be asked to give bank guarantees for the incremental revenue.
During the process of seeking Cabinet approval, the finance ministry also sought to know if the government's argument in the arbitration against RIL on reasons for fall in gas output would be diluted by accepting bank guarantee from the company.
RIL had launched the arbitration after the oil ministry slapped a $1.8-billion penalty on the company for not fulfilling supply commitments. The government has countered by blaming the drop in output on RIL not drilling the number of wells envisaged in the approved field development plan.
RIL has argued that drilling more wells would be a waste of money since the fields were geographically behaving differently than was envisaged and water as well as sand was choking the existing wells.
The finance ministry said under the circumstances, the arbitration could linger for an indefinite period in which case bank guarantee would be worth about $9 billion and have to be monitored closely. It also wanted to know the proposed course of action in case RIL did not honour the guarantee.
via Business - Google News http://news.google.com/news/url?sa=t&fd=R&usg=AFQjCNH1OrcZIBAgNcRT1zphzvdg0wBdYQ&url=http://timesofindia.indiatimes.com/business/india-business/RIL-can-hike-gas-price-with-bank-surety/articleshow/27667975.cms
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