RIL not budging on gas price hike from April 1

Firm trying to armtwist us by demanding security for differential between previous & revised prices, says fertiliser sector

A week after agreeing to temporarily sell gas to fertiliser units on old terms, Reliance Industries Ltd (RIL) has written to these firms saying it is not bound by any agreement to supply gas from its KG-D6 block at $4.2 a million British thermal unit (mBtu), even in the interim — something the fertiliser sector has termed “armtwisting”.

Last week, Fertiliser Secretary Shaktikanta Das had said RIL agreed to supply natural gas to fertiliser firms at $4.2 an mBtu till it reached a new agreement with the 16 fertiliser companies that bought gas from it. Das did not elaborate on the duration or other terms of potential new contracts between RIL and the fertiliser firms.

In an April 8 letter, RIL contested this interim “agreement”, saying the new formula, which almost doubles the price of the fuel, will apply from April 1. “Your description of what transpired at the meetings held at the petroleum & natural gas ministry and the department of fertilisers is not accurate and does not capture the discussions, which in any case were inconclusive. We deny the sellers agreed to the terms as suggested by you in your letter dated April 3.”

The letter further says that fertiliser companies will have to provide security for the differential between the previous price and the revised price, as part of the revised agreement being thrashed out between RIL and gas buyers. The 16 firms, which buy some 13 million standard cubic meters a day of KG-D6 gas, had in 2009 provided financial securities to guarantee payment at $4.205 an mBtu. Now, RIL wants them to provide additional letters of credits (LCs) for another $4.1 an mBtu and has said the marketing margin will be at $0.135 an mBtu.

TO THE BASICS

• Dec ’12: Rangarajan committee gives its report on gas pricing
• Jun, 27, ’13: Cabinet Committee on Economic Affairs clears proposal to double gas price to $8.4 an mBtu
• Dec 19, ’13: CCEA clears the decks for RIL to avail of higher prices, provided it gives a bank guarantee to cover any shortfall in KG-D6 output (till it is proved there was no intentional hoarding of gas)
• Jan 10, ’14: Petroleum ministry announces domestic natural gas pricing guidelines; says these guidelines will apply to D1 and D3 gas discoveries only on submission of bank guarantees
• Mar 24, ’14: The Election Commission vetoes gas price hike; asks for notification to be deferred till the general polls are over
• Apr 2, ’14: Fertiliser ministry notifies P&K fertiliser subsidy rates for FY15; Secretary Shaktikanta Das says RIL has agreed to supply gas to fertiliser firms at $4.2 an mBtu till a new agreement is signed

As far as RIL is concerned, gas prices have been notified and KG-D6 gas will also be sold at the revised price from April 1.

The fertiliser sector, however, contests RIL’s claim. S Nand, deputy director-general of the Fertiliser Association of India, said: “RIL is asking for a security against an enhanced price of $8.3 an mBtu of gas. That’s not acceptable to us. We maintain the government has asked the company to supply gas at existing prices, so there is no question of security. Accepting RIL’s demand for a security would mean the buyers are accepting a higher price of $8.3 per mBtu. We will accept a price that has been notified by the government. Our current LCs factor in the current price, so there is no question of enhancing the limit of the LCs.”

The Union Cabinet had last year approved a formula that linked prices of locally produced gas with global benchmarks, which would have nearly doubled gas prices from current levels. But the Election Commission asked the government to defer the price increase until the completion of the five-week general elections in the middle of May. The Bharatiya Janata Party has said, if elected to power, it will review the gas-pricing formula.