Reliance to gain as Moily swears by gas price hike

Reliance Industries Ltd (RIL) and other gas producers will finally get to increase the price of domestically produced natural gas, with the government formally announcing a revised gas pricing formula over the next three weeks.

The revised pricing formula allows Reliance and other producers of natural gas to more than double the price of gas they sell to consumers – from around $4.22 per million British thermal units (mmBtu) to $8.66 per mmBtu.

Petroleum minister Veerappa Moily said the government will formally notify the new gas pricing formula within three weeks, allowing Reliance Industries and others to double prices from April 2014.

Moily's confirmation of a hike in the price of domestically produced gas ends a prolonged inter-ministerial wrangling and a long wait by Reliance Industries for raising gas production from the KG-D6 gas blocks off India's east coast.

Although the union cabinet had approved higher rates for domestic natural gas in June this year, a formal announcement on this has been held up because of the declining production at RIL's KG-D6 gas blocks, which, it was alleged, was a deliberate move by the company to extract a higher price.

Moily also on Tuesday expressed confidence in securing necessary bank guarantees from RIL for settlement of any claims that may arise from the shortfall in the supply of gas vis-à-vis its production sharing agreement with the government.

"The Rangarajan formula will be formally notified in the next 15-20 days," Moily said.

The gas-pricing formula recommended by the Rangarajan committee is based on international benchmarks in the US, the UK and Japan as well as liquefied natural gas (LNG) imported by India.

"A firm decision has been taken for the enhancement of gas price by the Cabinet Committee on Economic Affairs, which will be effective in April 2014. It will apply to all upstream energy companies in the state and private sectors without any exception. RIL has proposed that it will furnish bank guarantees till the dispute regarding declining production from DI&S3 is resolved. We, at the ministry, have accepted it and are preparing a cabinet note on the same," Moily told reporters in Mumbai.

"RIL will furnish these $135-million bank guarantees till the arbitration reaches a final conclusion," Moily added.

Reliance Industries has been accused by the oil ministry and the petroleum sector regulator, the Directorate General of Hydrocarbons (DGH), of deliberately holding up production.

The government has also declined to approve $1.8 billion of its investments over the last few years for failure to achieve results.

RIL sources said the company was optimistic after Moily's statement. "At least the minister is making an honest effort to delineate issues and actively engage with the company's concerns in a positive manner," according to them.