RIL signs interim deal with buyers for supply of KG-D6 gas

Talks between both parties inconclusive

Reliance Industries Ltd (RIL) will continue to supply gas at $4.2 a unit to 16 fertiliser units until the government comes out with another notification in this regard.

This follows the asking RIL to continue supplies on existing terms in the interim period, after talks between both the parties remained inconclusive. Sources said the primary issue between both the sides was pricing.

A new agreement was necessary, as existing gas sales purchase agreements (GSPAs), signed in 2009, expired on Monday.

THE RIL STORY

• While fertiliser firms wanted to continue at $4.2 per million British thermal unit (mBtu), RIL wanted to calculate it according to the Rangarajan formula, which arrived at a price of $8.4 per mBtu, supposed to be applicable from Monday, but was postponed due to an Election Commission notification
• As of March 31, there were 50 GSPAs for KG-D6 gas in the core sectors of liquefied petroleum gas, fertiliser, power and city gas; these were signed in 2009
• Currently, RIL supplies 13.5 mscmd, valued at Rs 12 crore (Rs 4,400 crore annually), to 16 fertiliser units
• Delay in implementation of new price for two months means a loss of at least Rs 720 crore for RIL

While fertiliser companies wanted to continue with a price of $4.2 per million British thermal units (mBtu), RIL wanted to calculate it according to a formula suggested by a committee headed by C Rangarajan. Through this formula, a price of $8.4 per mBtu was arrived at. This was to have come into effect on Monday, but was postponed by the Election Commission due to the model code of conduct ahead of the coming elections. As such, the new pricing will be delayed by at least two months, as a new government is expected to take charge only by June.

"Currently, RIL supplies 13.5 million standard cubic metres a day (mscmd), valued at Rs 12 crore (Rs 4,400 crore annually), to 16 fertiliser units," said a Mumbai-based analyst. A delay of two months in the implementation of the new price means a loss of at least Rs 720 crore. Sources said while RIL wanted a new price, fertiliser companies wanted to bring in a letter of credit for $4.2 a unit during the period the model code of conduct was in place.

"RIL will continue the supply for an interim period at the government-notified price and marketing margin," said Satish Chander of the Fertiliser Association of India. During this period, both parties are likely to arrive at a consensus on GSPAs, as well as their contentious issues.

The new pricing formula was notified by the Ministry of Petroleum and Natural Gas on January 10 this year.

After the Election Commission had asked the government to keep the gas price rise on hold, the Centre had, last week, come out with a notification that said the earlier applicable gas price would continue till further orders. This meant the Rangarajan formula would not be applicable from Tuesday.

Currently, RIL has 50 GSPAs for KG-D6 gas in the core sectors of liquefied petroleum gas, fertiliser, power and city gas sectors; these were signed in 2009.