Oil Ministry to seek Law Ministry's view on RIL demand

The Oil Ministry is likely to refer Reliance Industries' demand for an increase in price of natural gas it produces from eastern offshore KG-D6 fields to the Law Ministry.

"We will take an opinion of the Law Ministry before proceeding on the issue," an Oil Ministry official said here.

RIL had on January 6 written to the Oil Ministry and the Prime Minister's Office (PMO) seeking a gas price revision, saying the current $4.2 per million British thermal unit rate for KG-D6 gas was "sub-market" price compared with three times higher price being paid for imported gas (LNG).

The PMO subsequently asked the oil ministry to legally examine if the government can allow RIL to increase the price.

The government had in 2007 fixed $4.20 per mmBtu as the price of gas produced from KG-D6 fields for first five years of production. KG-D6 fields started production in 2009.

But the Oil Ministry's letter on October 10, 2007, informing RIL of the pricing decision did not stop at this and went on to state that if the company was to realise a price higher than $4.20 per mmBtu, then that rate would be used for determining government's take from KG-D6 block.

Sources said it is perplexing why this clause was inserted if the gas price was to be $4.2 per mmBtu for five years as the Oil Ministry is insisting now.

RIL had originally proposed a rate of over $4.3 per mmBtu for first three years of production which was later tweeked by an Empowered Group of Ministers (EGoM) to $4.2 per mmBtu for five years.

"If the actual price at which any supplies made to any consumer happens to be higher than the one arrived at by (the formula approved by the EGoM), then the higher price shall be taken for purposes of the Government take for that quantity," the ministry wrote to RIL on October 10, 2007.

This clause in the oil ministry letter may be the reason behind RIL's January 6 letter seeking revision of "discriminatory" and "sub-market" price for KG-D6.

Sources said the ministry is not inclined to accept RIL request on the grounds that RIL had accepted to keep price stable at $4.2 per mmBtu for five years. It is also relying on the Supreme Court's May 7, 2010 judgement in the gas row between RIL and Anil Ambani's RNRL that stated that government alone has the right to fix the selling price of gas from all fields including KG-D6.

When the nation can pay $12-14 per mmBtu price to overseas producers of liquefied natural gas (LNG), the domestic gas producers too deserve an equivalent price. While high imported LNG price gives no incentive to the government, a higher domestic price would fetch it higher revenues in form of royalty, taxes and profit petroleum.