Pricing issue: RIL, British Gas take GAIL to arbitration panel

Reliance Industries and British Gas, joint venture partners in the Panna-Mukta and Tapti oil and gas fields, have taken GAIL India Ltd, the government-nominated marketer of gas from the fields, to an international arbitration panel over gas pricing issues.

The Panna-Mukta and Tapti fields are jointly held by British Gas (30 per cent), Oil and Natural Gas Corporation (40 per cent) and Reliance Industries (30 per cent).

GAIL, the country's largest transporter and marketer of gas, has written to the ministry of petroleum and natural gas saying it will contest the move and "since the issue of price revision has already been resolved by the ministry, claim of theJV is not in the right spirit of the ministry's directive."

The government had in December 1994 signed a production sharing contract (PSC) with the consortium operating the Panna-Mukta and Tapti fields.

The PSC provided for a price which did not exceed $3.11 per million British thermal unit (mBtu) for a period of seven years from the start of production from the fields. GAIL was buying the gas at $3.11 per mBtu during the period.

On expiry of the period in June 2004 for the Tapti field and in February 2005 for the Panna-Mukta field, the ceiling price of the gas was hiked by the consortium to $5.57 per mBtu. This resulted in an actual price of $4.8-4.9 per mBtu from the two fields.

When GAIL had expressed inability to buy gas at that price, the petroleum ministry stepped in and reached a consensus of GAIL being supplied 6 million standard cubic metres per day (mmscmd) of gas from the fields at $3.86 per mBtu.

The consortium has now appealed before an arbitration committee that GAIL should pay them the difference between the $3.86 per mBtu fixed after April 2005 and the $3.11 it was paying before that.

"We are claiming that GAIL has to pay the joint venture partners the differential amount as the seven-year lock-in period for the $3.11 price ceiling had expired before April 2005. It is GAIL's responsibility to pay up the differential," said a senior British Gas official, who did not want to be named.

GAIL, however, contends that since the $3.86 per mBtu price was put into force only after April 2005, it is not bound to pay the $0.75 per mBtu differtial for any period before April 2005.

"There is no gas price differential amount, interest and sales tax due to the joint venture running the Panna-Mukta and Tapti fields," the company said in a letter to the oil ministry earlier this month.

BG-ONGC-RIL produces 40,000 barrels of crude oil per day from the Panna-Mukta fields and 5.5 mmscmd of gas.