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RIL, fertiliser cos fail to strike gas supply pact

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Reliance Industries Ltd and fertiliser manufacturers on Monday reached an interim agreement under which RIL will continue to supply gas at current rate of $4.2 mmBtu beyond the March 31 expiry of the current gas sales and purchase agreement (GSPA) between them. However, they could not finalise a fresh GSPA.

"RIL will continue to supply gas at the existing $4.20/mmBtu rate to fertlisers companies from its KG-D6 basin. However, new agreement has not been signed yet as still there are small issues. We will continue to have discussion with RIL along with fertliser and oil ministries. Both parties have agreed to expeditiously finalise the agreement," Fertiliser Association of India secretary Satish Chandra told dna.

He said the association continues to maintain its position on several issues like gas price and marketing margins. "We have demanded that gas price must be fixed and notified by the government, marketing margins should also be fixed by the government," Chandra said.

He, however, did not share the details on the issues which needed further discussion with the Mukesh Ambani owned company.

RIL wanted the 16 fertiliser companies to financially secure payments for about 13 million standard cubic meters per day of gas they buy from its eastern offshore KG-D6 field at $8.34.

But the fertiliser units said that since the new rate is not applicable and the oil ministry had ordered the supply of gas at the existing rate while the model code of conduct is in place, they would provide letters of credit at $4.2 per mmBtu.

Fertiliser secretary Shaktikanta Das, who chaired the meeting, said RIL will supply gas on the existing terms in the interim and a new Gas Sale and Purchase Agreement (GSPA) will be negotiated.

"We had discussions today with FAI and RIL on GSPA. Reliance has agreed to supply gas at $4.2 per mmBtu. In the meantime, Reliance and FAI will sit together to come up with new agreement," he said.

"The GSPA is under discussion. Both Reliance and FAI have agreed they will sit together and finalise it soon. Both of them agreed to do it earliest," he said.

It was crucial for fertiliser makers to break the deadlock with the oil and gas company as the five-year-old GSPA with 16 companies was ending on March 31 and without the agreement plants would not have received the necessary gas supply.

On Friday itself after the first round of discussions, both FAI and RIL had indicated that the existing contract would be extended and gas supply would continue at $4.2 per million metric British thermal units (mmBtu) till the new government decides to renew the gas price based on the C Rangarajan committee formula.

Fertiliser companies and RIL have been at loggerheads after the Mukesh Ambani-owned company sent a draft of new GSPA to fertiliser manufacturers on March 6 which intensified after election commission suggested deferment of gas price hike till the election were over. Following, which Oil minister M Veerappa Moily notified deferment of the new pricing regime to Directorate General of Hydrocarbons (DGH) on Friday. The new pricing regime would have doubled gas prices from current $4.2/mmBtu.

The Fertilisers Association of India (FAI) through its letter on March 18 and 21 to petroleum and gas ministry had raised several concerns on this proposed GSPA, which included reduction in the tenure of the contract from five years to one quarter, using GCV for gas pricing formula instead of NCV, marketing margin of $0.135/mmBtu, restricting scope of GSPA to only three gas fields instead of entire KG D6 block, gas supply pressure, etc.

On Friday Chandra had indicated that most issues with RIL were resolved except a few which included discussion on gas price and marketing margin and bank guarantee asked by government. He said that fertiliser companies will continue to give bank guarantee as they used to earlier based on the terms and conditions mentioned in the agreement. Comments from Reliance Industries could not be obtained immediately.

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