RIL serves arbitration notice on govt for failure to notify new gas price

The RIL-BP-NIKO combine on Friday served a notice of arbitration on the Government of India seeking the implementation of the `Domestic Natural Gas Pricing Guideline 2014', notified early this year.

The government had, on 10 January 2014, approved the Rangarajan Committee formula that doubles the price of natural gas that domestic companies produce to $8.2 per unit from the existing $4.2 per unit.

The pricing formula, however, has been criticised by the opposition parties ever since it was approved in 2013.

The government had fixed a price of $4.2 per unit for gas from the KG-D6 for the first five years of production. The fields started production on 1 April 2009 and therefore the price expired on 31 March 2014.

''The continuing delay on part of the Government of India in notifying the price in accordance with the approved formula for the gas to be sold has left the parties with no other option but to pursue this course of action. Without this clarity, the parties are unable to sanction planned investments of close to $4 billion this year,'' Reliance Industries said in a release.

RIL said the delay in implementation of the gas pricing formula will also delay the ability of the parties to appraise and develop other ''significant'' discoveries made last year.

RIL said the parties were planning to invest $8-10 billion in the gas field where production, in fact, has been steadily declining over the past few years.

RIL said production from the KGD6 block will increase significantly over the next few years, adding that this domestic production is essential for meeting the country's energy needs, which will also help conserve foreign exchange.

''All of this requires clarity on pricing,'' RIL said, adding, ''The three parties shall endeavour to work with the government to achieve a prompt and efficient resolution of this dispute.''

RIL and Niko were the original parties to production sharing contract with the government and BP was taken in later after RIL felt it needed deep-sea expertise to raise gas production at the KG D6 block.

Meanwhile, the government last year announced a cabinet decision to implement the Rangarajan Committee gas pricing formula.

This price formula was not an arms-length price as per the production sharing contracts (PSC), and was seen by many as a formula to favour the Mukesh Ambani-led Reliance Industries.

However, implementation of the pricing formula was held up because of the elections and since the elections are now over. The Election Commission stopped the government from announcing the new price until the election code of conduct is in force.

RIL is now demanding that the new gas price be awarded.