Reliance defies EC, tells fertiliser firms to pay double for gas

Reliance Industries Ltd seems to have reneged on its word that it would continue to supply gas to fertiliser companies from its Krishna-Godavari Basin fields at the old rate of $4.2 per million metric British thermal units (See: RIL, ONGC stocks skid after EC stalls gas price hike), and has instead written to the fertiliser makers that they would have to pay at the new rate of $8.3 per mmBtu as of 1 April.

The agreement for supply at the old rate expired on 31 March, but the Election Commission had ordered a deferring of the doubling of domestic gas prices as long as the electoral 'model code of conduct' is in force, with general elections under way. But RIL's stand seems to defy the EC order.

In a letter to fertiliser companies on Tuesday, RIL has said that the gas price of $ 4.205 per mmBtu was valid only till 31 March.

"By a notification dated January 10, 2014, published on the Gazette of India on January 17, 2014, the government of India has notified the (new) gas price formula. Clearly, with effect from April 1, 2014, a revised price is applicable to all gas supplied by us and accepted by you," the RIL notice said.

Last week, fertilisers secretary Shaktikanta Das said RIL had agreed to supply natural gas to 16 fertiliser companies at $4.2 an mBtu till it reached a new agreement with them. Das did not elaborate on the duration or other terms of potential new contracts between RIL and the fertiliser firms.

In its letter, RIL contested this interim ''agreement'', saying the new pricing formula will apply from 1 April. ''Your description of what transpired at the meetings held at the petroleum & natural gas ministry and the department of fertilisers is not accurate and does not capture the discussions, which in any case were inconclusive. We deny the sellers agreed to the terms as suggested by you in your letter dated 3 April,'' RIL told the fertiliser companies.

The letter further says that the fertiliser makers will have to provide security for the differential between the previous price and the revised price, as part of the revised agreement being thrashed out between RIL and gas buyers.

The 16 firms, which buy some 13 million standard cubic meters a day of KG-D6 gas, had in 2009 provided financial securities to guarantee payment at $4.205 per mmBtu. Now, RIL wants them to provide additional letters of credits (LCs) for another $4.1 per mmBtu and has said the marketing margin will be at $0.135 mmBtu.

It further said that the terms and conditions under which gas is sold was a matter of bilateral discussion, it said fertiliser companies will have to provide security for payment for the differential between the previous and new rates.

Expectedly, the fertiliser industry is not prepared to meet RIL's new terms, and says it will only follow government-mandated pricing.

The union government had last year approved a formula that linked prices of locally produced gas with global benchmarks, which would have nearly doubled gas prices from current levels. But the Election Commission asked the government to defer the price increase until the completion of the five-week general elections in the middle of May.

The Bharatiya Janata Party, widely expected to lead the next government, has said it will review the gas-pricing formula if it comes to power.