Industry keenly awaits next gas price hearing

On April 29, the Bombay High Court will also decide if the govt can be a party to the case.

April 29 will be an important day for the country's gas economy.

On that day, the Bombay High Court will start hearing the case between the warring companies, Reliance Industries Ltd (RIL) and Reliance Natural Resources Ltd (RNRL), to reach a quick decision on who will get access to the huge volumes of gas to be produced from RIL's block in the Krishna-Godavari basin.

On April 29, the court will also decide if the central government will be admitted as a party to the case.

The government yesterday filed an application in the court saying it should be made a party to the case as it part-owned the gas that RIL was planning to produce from its D6 block in the Krishna-Godavari basin later this year.

"We are directly affected by the outcome of the case as it affects our share of profits from the sale of the gas. We filed an application in the Bombay High Court on Friday," said a senior oil ministry official.

The oil ministry wants the stay order on the sale of the gas from the RIL block vacated as production will not be possible unless RIL signs supply contracts with consumers. However, an order by the court last year prevents RIL from entering into any third-party contracts for selling the gas.

RNRL would oppose the central government's move to become a party to the case, said a company executive.

According to the earlier order of the Bombay High Court, the entire gas from the block has been committed to RNRL and NTPC and for RIL's captive use.

RIL plans to produce 80 million cubic meters per day (mcmd) gas from the block at its peak rate. This will almost double the country's current gas availability.

RIL had, in January 2006, agreed to supply 28 mcmd gas to RNRL at $2.34 per million British thermal unit (mBtu). This price was rejected by the petroleum ministry, which said it was not arrived at through an arm's length formula. The government last year approved a price of $4.2 per mBtu.

Any price agreement between the two companies, or with any other company, would have to be cleared by the government as the sale price would determine the government's share of royalty and profit.

RIL had also entered into a similar agreement with electricity generator NTPC in 2002. However, Mukesh Ambani-promoted RIL later said it could not sell gas to NTPC at such a low price as gas prices had increased since the agreement was signed.

"The dispute between the two companies may delay production or force RIL to cap production from the D6 block as the gas contracted with RNRL cannot be sold to any other buyer," said a Delhi-based analyst.