Gas pricing: Reliance, KG-D6 partners insist on arbitration

Reliance Industries Ltd, along with its partners in the KG-D6 gas field BP Plc of the UK and Canada's Niko Resources, on Saturday served an arbitration notice to the government over the delay in implementing the revised natural gas prices.

Reliance and its partners were to get the new rate of $4.2 per standard unit from 1 April for gas from the Krishna-Godavari offshore basin after the expiry of the current pricing formula, but the Election Commission had stayed the decision with the general elections in progress.

"RIL, BP and Niko have issued a Notice of Arbitration on May 9, 2014, to the Government of India seeking the implementation of the 'Domestic Natural Gas Pricing Guideline 2014' notified on January 10, 2014," the companies said in a joint statement.

"The continuing delay on part of the Government of India in notifying the price in accordance with the approved formula for the gas to be sold has left the parties with no other option but to pursue this course of action."

With the new rates in abeyance, RIL has been forced to continue selling gas at the old rates, and there is no clarity on when the revised prices will be announced.

Without clarity on pricing, RIL and its minor partners said they are "unable to sanction planned investments of close to $4 billion this year."

This would also delay their ability to appraise and develop other significant discoveries made last year, the statement added.

"Overall, the parties (RIL, BP and Niko) were planning to invest $8-10 billion in the next few years to significantly increase production from the KG-D6 block" – but this is difficult in the absence of pricing clarity, the statement said.

RIL and its partners are already in arbitration with the government over a $1.8 billion penalty levied on them for poor output from the main Dhirubhai-1 and 3 gas fields in the KG-D6 block.

The two fields currently produce just over 8 million standard cubic metres per day of gas, a 10th of the 80 mmscmd output that RIL had forecast for this time when it got approval for investment plans for the fields.