May 18, 2012 09:18 AM IST | Source: CNBC-TV18

GoI may revise KG-D6 gas price before 2014: Sources

The Government may allowReliance Industries (RIL) to revise its KG-D6 gas price from its current levels of $4.2/mmbtu (per million British thermal units) even before 2014, say CNBC-TV18 sources. The company's share price rose 1% following this news.

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The Government may allowReliance Industries (RIL) to revise its KG-D6 gas price from its current levels of $4.2/mmbtu (per million British thermal units) even before 2014, say CNBC-TV18 sources. The company's share price rose 1% following this news.

Sources further say that the oil ministry is yet to formally discuss the price hike. Also, the Empowered Group of Ministers (EGoM) will take up the law ministry's opinion when it meets next.

In the existing formula for the KG-D6 gas price, crude price has been capped at $60 even if you take $120 as the price of crude. The gas price as per this approved formula comes to only $4.48/mmbtu.

With the law ministry opining that the KG-D6 gas price can be revised, we should perhaps expect RIL submitting a new formula in the past. In the past it has asked the government to increase the gas price to $6.

RIL has been arguing its gas is the cheapest in the country and at par with APM gas. Other refiners like Essar Oil get over $4 for their gas.

If you go by the approved KG-D6 price formula, the gas price comes to only $4.48.

It may be noted that RIL and its partner BP were seeking a higher gas prices and the oil ministry was against hiking price and had said hiking price would increase subsidy burden.

It may  also be recalled that in January this year, RIL had given the government 90 days to arrive at a decision over the pricing of gas and had stated that the current price of gas was no longer viable.

In February, the government had rejected RIL's demand for a revision in the KG-D6 gas price, saying the USD 4.2 per mmBtu rate for five years was not only agreed to by company but also upheld by the Supreme Court (SC).

The Ministry on January  wrote to RIL quoting from the May 7, 2010, Supreme Court judgement in the gas row between the company and Anil Ambani's Reliance Natural Resources Ltd (RNRL) to assert that "any price revision proposal will be examined by the government after expiry of five years from commencement of supply."

By this logic RIL can revise price only after 2012 as it started gas production from the block in April 2009


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