Govt decides in principle to let Reliance Industries raise KG gas price

The company had asked for re-negotiating a revised formula with the ministry under the production sharing contract which governs their mutual relationship. “On the issue of price revision,the meeting required that the process of price discovery may be allowed as per the provisions of the (contract) ,” a source told The Indian Express.

However no decision was taken on whether the Comptroller and Auditor General (CAG) should be allowed to inspect RIL’s books.

The move will come as a relief for India’s largest company by market cap. RIL share prices have moved in a narrow range amid concerns that output from the KG basin has been continuously dipping since 2010.

The government and RIL have traded charges with the company claiming that brakes on capital expenditure has hampered work on fresh discovery of reserves. The government in turn has claimed that higher expenditure will cut down its revenue share known as profit petroleum.

RIL in a letter dated January 6 to the PMO had stated that it wanted to exercise its contractual right to market natural gas on the basis of arm’s length competitive sales to “benefit all the parties under the production sharing contract including the government”. It also described the current price of KG-D6 gas as a “sub-market” price.

The price was set by an empowered group of ministers headed by former finance minister Pranab Mukherjee. RIL said that it has invested about $8 billion in the KG D6 fields, and that it has legitimate expectations of a free market with the ability to obtain competitive arm’s length prices.

On the audit of RIL’s books,petroleum Secretary GC Chaturvedi said that the bipartisan D6 management committee headed by Director General of Hydrocarbons has agreed to all the developmental proposals made by the contractors. “But the finalisation of the decision is pending due to the contractor’s refusal to allow audit by the CAG.”