Govt wants Reliance Industries to drop arbitration notice: report

23 Jun 2014


The petroleum ministry is reported to have 'informally' asked Reliance Industries to withdraw the arbitration case it has filed against the government for failing to implement the revised gas prices even as RIL has declared that the ''higher price'' being offered by the government for the gas produced from the KG-D6 block off the Andhra coast is ''not market linked'', and it should get even more, in keeping with market realities.

Business Line quoted sources close to the development as saying that at a recent meeting between RIL's executive director and CEO PMS Prasad, petroleum secretary Saurabh Chandra had suggested that the contractor of the controversial KG-D6 block should withdraw the arbitration notice.

The government's decision to revise gas prices for domestic production from $4.2 per mmBtu (million British thermal units) to $8.4 mmBtu, which the government has still not formally announced, has been opposed by several politicians, including Aam Aadmi Party (AAP) leader Arvind Kejriwal, who claimed it would mean a ''windfall'' of Rs54,500 crore for RIL.

RIL and its partners, BP and Niko, had, last month, served a notice of arbitration on the petroleum ministry, and followed it up with another notice on the appointment of an arbitrator.

The petroleum ministry is unable to formalise its stand on the subject in the absence of clarity of opinion in the other ministries such as finance, power, and chemicals and fertilisers. The decision is now left to the prime minister since power, chemicals and fertilisers are among the industries that are directly impacted by a change in gas price.

The ministry has 30 days to respond to the notice of arbitration.

''The government is keen to resolve the issue, but the same cannot be done under pressure,'' said an official, adding that the 'interests of sectors such as power and fertilisers have to be taken into account.''

Petroleum ministry seems to suggest that there is no dispute over the gas pricing issue as the government has the right to decide on the price of gas, which is a natural resource. The notice is not tenable and the contractor should withdraw it.

There is also some sort of a consensus among the various ministries that the pricing formula suggested by the Rangarajan panel needs to be revised.

A decision on the new price for the RIL-operated KG block has to be taken before 1 July and prime minister Narendra Modi's guidance on the issue is important in the absence of a clear consensus among the various ministries.

As per the notified guidelines, the earliest possible date for applying the revised prices is 1 July 2014 and until the new price is announced, the contractor has to charge the existing price of $4.2 per mmBtu.

RIL and partners, on the other hand, filed the arbitration notice as their future investment plans depend on the gas price.

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