In the face of opposition from the Power Ministry and an Anil Ambani group firm on the marketing margins charged, Reliance Industries (RIL) has justified the levy saying it was essential to cover risks and costs incurred in marketing of gas.
"The marketing margin being charged by RIL on sale of KG-D6 gas is fair and justified consideration for the risks and costs undertaken in the GSPA including such risks and costs beyond the delivery point," RIL President (Gas Business) R P Sharma wrote to Power Secretary H S Brahma.
Brahma had on September 25 questioned the levy as RIL being an integrated producer and marketer of gas while NTPC asked his ministry to seek a specific confirmation for the levy from the government.
Terming as illegal the market margin, Anil Ambani group firm Reliance Infra had refused to pay the levy prompting RIL to issue a notice for suspension of fuel supply for "default". NTPC has sought to know whether the margins levied by RIL had government's approval.
RIL said the $0.135 per mmBtu marketing margin over and above the price was to cover risks like sellers liabilities in case of non-supply, customers drawing less than their quota, non-payment of dues and settlement of disputes and claims on quality, quantity or terms of the GSPA.
While marketing margin is a charge for creation of market and servicing sale contracts, RIL had undertaken extensive activity to identify customers, execute and manage gas sales and purchase agreements (GSPAs), gas sales planning, daily gas sales operations, gas accounting and invoicing and collection, Sharma wrote.
Reliance Infrastructure had from this month stopped paying the levy to RIL, leading to the Mukesh Ambani firm RIL slapping a discontinuation notice.
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Other gas marketers like state-run GAIL India also charge marketing margin. It charges $0.18 per mmBtu margin on sale of regassified-LNG and about $0.12 per mmBtu for gas from fields like Panna/Mukta and Tapti and Ravv.
"GAIL is negotiating to increase the marketing margin these fields to about $0.18 per mmBtu to bring it at par with marketing margin it charges on sale of R-LNG," Sharma wrote.
RIL said it had in its application to the government for approval of the price of KG-D6 gas had indicated that marketing margin would be charged separately to cover costs and risks in sale of gas.
"It has also been clarified by Petroleum Ministry that marketing margin has to be discussed and settled between seller and buyer of gas in settlement of the terms of the Gas Sales and Purchase Agreement," Sharma wrote.
Quantum of marketing margin is agreed between seller and buyer of gas based on the cost and risks perceived under the PSC.
For KG-D6 gas, RIL had initially proposed $0.12 per mmBtu as marketing margin but when customers sought multiple changes to increase RIL's risks and liabilities, the levy was raised to $0.15 per mmBtu.
The same was again discussed with buyers in the fertiliser sector (who were given the top most priority to receive KG-D6 gas) and the Department of Fertilisers and finally a marketing margin of $0.135 per mmBtu was agreed with the buyers, it added.