No gas pricing freedom for RIL if arbitration continues
New Delhi: Reliance Industries Ltd (RIL) won’t have the freedom to price natural gas produced from
undeveloped deep-sea fields in the KG-D6 block so long as it pursues arbitration proceedings against the
government, according to the hydrocarbon policy document unveiled on Thursday.
The new policy offers pricing freedom for gas discovered from deep, ultra-deep water and high-pressure
and high-temperature areas that are yet to be developed for production.
“The pricing policy is self explanatory. Pricing freedom will be available to producers only when a
pending arbitration is concluded or withdrawn,” oil minister Dharmendra Pradhan said.
BP Plc., RIL’s 30% partner in the KG-D6 block, which houses many undeveloped discoveries otherwise
eligible for free pricing, prefers RIL to drop the arbitration. The British energy company, which has
business in more than 70 countries, follows a conciliatory approach in resolving disputes, which are very
common in the energy business the world over.
“The recent decision by the government on “marketing including pricing freedom” for new production
from deep, ultra-deep water, and high pressure high temperature areas, provides clarity to end the
pending gas pricing dispute. BP and its partners will now focus on working closely with the government
to develop resources and bring additional natural gas to market,” said a BP spokesperson.
Emails sent to RIL and Niko Resources, a 10% partner in the D6 block, were not answered.
RIL has started production from the D1 and D3 fields in the D6 block, but there are many yet-to-be
developed discoveries within the block. The liberal pricing regime for discoveries in deep sea and other
difficult geological areas apply to existing and future discoveries that are yet to commence commercial
production as of 1 January 2016.
Out of the 28 such discoveries which are eligible for pricing freedom, eight belong to RIL and are housed
in two different blocks, accounting for 2.53 trillion cubic feet (tcf) of gas reserves, according to a
presentation on the new policy prepared by the oil ministry.
The Oil and Natural Gas Corp. Ltd has 14 discoveries accounting for 3.2 tcf and Gujarat State Petroleum
Corp. Ltd has one accounting for 1 tcf.
RIL initiated the arbitration in 2014 demanding implementation of the pricing formula developed by the
previous United Progressive Alliance (UPA) government.
Enforcing that formula would have doubled the price from the then prevailing $4.2 per million British
thermal unit (mmBtu) from 1 April 2014. However, the UPA could not go ahead due to the code of
conduct enforced by the Election Commission ahead of the Lok Sabha polls. The Modi administration
will allow pricing freedom once this thorny legal dispute is out of the way.
“In the case of existing discoveries which are yet to commence commercial production as on 1 January
2016, if there is pending arbitration or litigation filed by the contractors directly pertaining to gas pricing
covering such fields, this policy guideline shall apply only on the conclusion/withdrawal of such
litigation/arbitration and the attendant legal proceedings,” said the detailed statement issued after
Thursday’s cabinet meeting.
While withdrawing the arbitration would make commercial sense for RIL, it is not yet to be known
whether such a move will in anyway prejudice the company’s legal rights relating to any possible future
disagreements over the issue, said an industry executive, who declined to be named.
After assuming office in May 2014, the Modi government set the gas price at $5.6 a unit linking it to the
average of prices in gas-surplus countries such as the US, Canada and Russia. The periodically revised
price, currently at $3.82 a unit, is likely to be $3.15 from 1 April 2016.
To incentivize investments into oil and gas blocks to be awarded in the future under the Hydrocarbon
Exploration Licensing Policy, the cabinet also lowered the royalty rates to be paid by energy producers
after commencing production.
https://www.livemint.com/Companies/z2EzJyhiqgzsXLrSZa7dOL/No-gas-pricing-freedom-for-RIL-if-
