Standard industry practice, replies RIL
Anil Ambani-controlled Reliance Infrastructure (R-Infra) has again raised the issue of marketing margins being charged by Mukesh Ambani-run Reliance Industries Ltd (RIL) on sale of gas from the D6 block in the Krishna Godavari basin. It has asked the Ministry of Power to take up the matter in the meeting of the empowered group of ministers (EGoM) scheduled for Tuesday.
R-Infra had entered into a Gas Supply and Purchase Agreement on April 27 with RIL for its 220 Mw Samalkot plant in Andhra Pradesh. RIL is currently charging a marketing margin of 13.5 cents per million British thermal units (mBtu), in addition to the base price of $4.2. The two companies had last month fought over the issue, with RIL cutting supply.
This was later restored, with R-Infra agreeing to pay the margin “under protest”. It now wants the issue to be resolved by the EGoM that has recently been constituted for deciding on the commercial utilisation of gas.
“RIL should be directed to immediately put a stop to this illegitimate levy of marketing margin from all customers of KG Basin gas and refund the marketing margin wrongfully collected so far,” R-Infra Chief Executive Officer and Director Lalit Jalan said in a letter to Power Minister Sushilkumar Shinde.
It said the margin breaches the decision of an earlier EGoM on September 12, 2007. However, the ministry of petroleum has said the government had nothing to do with the issue and the marketing margin is a matter between buyer and seller.
RIL, on its part, denied that the margin breached any government decision or the interim arrangement put in place by the Bombay High Court on January 30 this year.
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In a response to the R-Infra letter, RIL issued a statement, saying, “Pursuant to an application by RIL, the government has approved a price formula for sale of gas at the delivery point under the production-sharing contract for KG-D6 (the particular gas field).” It said the contract covered exploration and production costs, but not the risks and costs incurred in marketing the gas beyond the delivery point. The margin was in line, it said, with general industry practice, and the quantum had been agreed to in GSPAs signed with over 40 customers in diverse sectors.
The present EGoM’s role is supposed to be confined to making allocation of the additional gas to be produced by D6. It will skip the issue of pricing, since that has been fixed for a period of five years starting April 1, 2009.
Terming the margin as “unauthorised”, the R-Infra letter said if paid by the power companies, it would lead to higher cost of generation for gas-based plants, affecting the viability of power generation.
Anil Ambani group company Reliance Natural Resources Ltd is also fighting a case against RIL in the Supreme Court on the pricing of gas from the KG basin to its Dadri plant in Uttar Pradesh.