RIL to sign gas supply deal with fertliser companies

As the March 31 deadline for Reliance Industries's signing of gas sales and purchase agreements (GSPA) with fertiliser companies draws closer, the sellers and buyers met with the oil ministry on Friday and decided to extend the existing contracts.

As per the negotiations, RIL will continue to sell natural gas from its eastern offshore basin KG-D6 to around 16 fertilisers companies 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.

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.

In a meeting between oil ministry, fertiliser makers and RIL in New Delhi on Friday, most of the issues were resolved, barring a few. "Still there are 2-3 contentious issues which have to be resolved. We will have one more meeting with the company (RIL) and oil ministry on Monday, where these would be discussed," FAI secretary Satish Chandra told dna.

"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 also mentioned about a bank guarantee which RIL had demanded from fertiliser buyers in absence of higher gas price. "How can we presuppose the price and give bank guarantee," he asked. Chandra, however, could not provide the details on exact amount of bank guarantee that RIL had demanded.

Anil Kapoor, managing director of Chambal Fertilisers and Chemicals who was present at the meeting, declined to provide details on the bank guarantee issue. "We are at advance stages of talks with the seller and it would be inappropriate to discuss the finer details of the meeting at this stage," he said. More clarity on the issues should come after Monday meeting, he said.

Instead of quarterly renewal as suggested by RIL in draft GSPA earlier, the company on Friday accepted to sign an agreement for a year, which was also accepted by fertiliser buyers, Tushar Pania, RIL spokesperson, confirmed. This agreement is most likely the term-sheet that was shared by RIL to buyers earlier for continuing supplies from April 1, which will be valid till new GSPA is signed.

Oil minister M Veerappa Moily also deferred the new pricing regime on Friday, after election commission suggested to defer gas price hike decision. The new pricing regime would have doubled gas prices from current $4.2/mmBtu.