"For the last six months, RIL has been seeking approval from the Government, but not for increasing current gas prices. Rather it has been seeking clarity on the basis of gas pricing that will be adopted post March 2014," company Executive Director P M S Prasad said.
The government had in 2007 approved USD 4.2 per million British thermal unit as the price of KG-D6 gas for first five years of production. KG-D6 began pumping gas from April 2009. Prasad said the basis for current gas price was submitted in April 2007, a full two years before the gas production commenced and was approved by the Government in October of the same year. The company's request for a market-driven price of KG-D6 from April 2014 follows the same pattern of giving time to the government to debate and decide.
"This clarity is required because the contractor partners have to make significant investments to develop various new discoveries. The price of gas naturally determines the commercial viability of any project, and it is not possible to raise financial resources for future developments from any source without there being clarity on the basis of pricing of the planned new production," Prasad said.
Dismissing reports that RIL is seeking a three-fold hike in gas price, he said, "Some vested interests were trying to create a needless controversy on the issue."
When asked about vested interests, he refused to pinpoint, but sources hinted that there was sufficient interests aligned with high priced gas imports, who stand to lose if domestic gas production were to increase.
Prasad said as per the Production Sharing Contract (PSC), RIL is contractually bound to sell all gas produced from the block at arms-length prices to the benefit of all the parties to the PSC.
"In early 2012, arms-length prices for gas in the country were higher than the price approved by Empowered Group of Ministers (EGoM) in 2007. RIL was receiving numerous offers from buyers seeking to purchase gas at prices higher than those approved," he said. "As per the provisions of the PSC, RIL was constrained to bring the willingness of buyers to pay higher gas price, to the notice of the Government and seek its directions."
Since then the company has not been pushing for any revision in rates before expiry of current prices in end of March 2014.
"The price of gas determines not just the share of the contractor but also the revenues flowing to the Government as royalty, profit share and taxes," he said. "To make investment decisions to bring gas from new developments after 2014, it is necessary that approval for gas prices are similarly obtained now."