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RIL insists on $8.3 mmBtu price for gas supply

Thursday, 10 April 2014 - 8:30am IST | Place: Mumbai | Agency: dna

Seeks higher security for differential in new & old gas price; another round of negotiations to follow

Reliance Industries Ltd (RIL) is insisting on $8.3 per million metric British thermal unit (mmBtu) rate for gas supply to fertiliser companies after last week agreeing to continue supplying at 4.2 mmBtu rate even after the agreement expired on March 31.

The Election Commission had deferred the doubling of domestic gas price to $8.3 per mmBtu, which was to come into effect on April 1, till the code of conduct is in force.

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

"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," it wrote.

Stating 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.

"They have denied to maintain the existing price and have asked a letter of credit for differential amount, however they continue to supply gas to fertiliser plants," Rakesh Kapur, joint managing director and chief financial officer of Iffco (Indian farmers Fertilisers Cooperative) told dna.

Last week, fertiliser secretary Shaktikanta Das, who chaired the meeting between RIL and fertilisers, had said RIL will supply gas on the existing terms in the interim and a new Gas Sale and Purchase Agreement (GSPA) will be negotiated. "Reliance has agreed to supply gas at $4.2 per mmBtu. In the meantime, Reliance and Fertilisers Association of India (FAI) will sit together to come up with new agreement," he had said.

Fertiliser firms, however, remain unfazed.

S Nand, deputy director general, FAI, said that RIL's demand for higher security based on revised price of $8.3/mmBtu was not acceptable to urea companies.

"In the last meeting, RIL had agreed that marketing margins will be decided by the government but they have not mentioned this in the agreement that was shared on Tuesday," he said.

"We have already provided letter of credit based on the existing price. We can not agree to pay higher security on a price which is not decided yet," Nand said.

He said FAI would approach the government with these new communication from RIL.

Sources said fertiliser companies, RIL, ministry of oil and fertilisers are likely to have a meeting again on either Friday or Monday to finalise the interim agreement of gas supply.

RIL's GSPA with fertiliser companies expired on March 31. The company having huge refinery in Gujarat had sent a draft of new GSPA to fertiliser manufacturers on March 6. The FAI, through its letters 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.

In the past two-three meetings while both buyers and sellers had resolved most of the issue, price applicability and marketing margins remained contentious issues. It remains to be seen now whether the government will allow RIL to charge higher gas price from retrospective effects or not.

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