Oil Min rejects RIL's gas price hike plan:Sources

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Oil Min rejects RIL's gas price hike plan:Sources

The Oil ministry has rejected Reliance Industries (RIL)'s plan to hike the cost of gas produced from the KG-D6 oil wells atleast for five years say CNBC-TV18 sources. But RIL says raising the price to USD 6 per unit is a viable option as they have run into cost overruns on the project.

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The Oil ministry has rejected Reliance Industries  (RIL)'s plan to hike the cost of gas produced from the KG-D6 oil wells atleast for five years say CNBC-TV18 sources. But RIL says raising the price to USD 6 per unit is a viable option as they have run into cost overruns on the project.

It may be recalled that RIL had written to the ministry late last year that it is the only gas company which is sharing profits with the government on selling gas from KG-D6 at USD 4.20 per unit. The energy giant had also contended that it has not yet recovered cost on this project and hence it needs to hike the price of the gas

It also pointed out in a communication with the ministry that there are public run companies like ONGC who do not split any profits with the government and hence they should be treated at par with private companies like theirs.

Hence, to resolve this cost recovery issue so as not to hinder future investments in this block, the company has begun arbitration proceedings against the government.

Under the KG-D6 production sharing contract (PSC) signed between RIL and the government, RIL was allowed to recover the complete expenditure that it had incurred to develop the fields before it started splitting its profits with the government.

However, RIL said that  production from the field is receding and it need to cover up its cost.

So far, RIL has incurred a capex of around $5.8 billion, of which it has recovered up to $5.2 billion for a targeted production of 60 million metric standard cubic metres per day (mmscmd) of gas, said the head of research of a leading international brokerage. "Currently, the KG D6 fields are producing 34 mmscmd, which would have required a capex of $3.4 billion. This means it has already earned $1.8 billion extra at current production levels, which apparently the oil ministry wants a share of."