Uniform rise in gas price for producers likely soon

NEW DELHI: The government may soon implement the Cabinet's four-month old decision to raise gas price uniformly for all producers. This follows a proposal to secure bank guarantees from Reliance Industries, which will be encashed if the company is found guilty of hoarding gas produced from its KG-D6 block.

The government could not notify the Cabinet-approved gas price formula in June after some departments sought to deny higher prices for RIL's KG-D6 fields that produced much lower gas than the approved production plan.

"A revised Cabinet note, demanding bank guarantees from RIL as security, is circulated. The move paves way for notifying the Cabinet's decision to revise gas price, which will be applicable from April," a senior government official told ET on condition of anonymity.

Some officials said the oil ministry is awaiting comments on the proposal of bank guarantee from government departments before formally announcing higher gas price, which will be uniformly applicable.




"The new gas price formula would be notified only if the finance ministry is on board," another government official said.

In July, days after the Cabinet approved the new gas formula, the finance ministry and a parliamentary committee had asked the oil ministry to review the Cabinet's decision to have a uniform gas price in light of sharply falling output from RIL's KG-D6 gas fields. Based on the observations, the oil ministry had initially floated a Cabinet note to deny new price for gas produced from RIL's oil fields. But the note has been recently revised to honour the Cabinet's decision to have a uniform gas price from April, officials said.

Many gas discoveries would become commercially viable once the new price is notified, oil ministry officials said. The ministry expects that the new gas price would immediately raise viability of at least four gas discoveries, which were announced by Cairn India and Reliance Industries, but could not be pursued because they were economically unviable at $4.2 per unit price, officials said.

"Four discoveries of Reliance in Cauvery and KG basin blocks and one of Cairn's KG onland block are stuck as they are not commercial at the current gas price of $4.2 per unit," an oil ministry official said. "A formal notification of revised gas price is expected to make four of them viable."

The ministry has, however, refused to recognise one of RIL's discoveries in a KG basin block (KG-DWN-2003/1) because it did not observe contractually approved procedure, officials said. This KG basin block is different than the controversial KG-D6 (KG-DWN-98/3).