RIL gas pricing: Law Min offers 3 options to resolve row

As the Cabinet gears up to take a final call on pricing gas from Reliance's KG-D6 block shortly, law ministry has proposed three options to the government to secure its interests and resolve the pricing row in the backdrop of the ongoing arbitration proceedings against RIL, reports CNBC-TV18’s Nayantara Rai.

The ministry has opined RIL can sell gas at the new price of over 8 dollars/mmbtu but with riders. It says RIL will have to keep aside the difference between the current gas price of USD 4.2 and the new price by way of bank guarantee which can be en-cashed depending on the outcome of the ongoing arbitration.

Also Read: RIL's KG-D6 output slips to 10 mmscmd According to law ministry, the bank guarantee can be en-cashed by the government in case the dispute is settled in favour of the government. It can be returned to RIL in case the dispute is settled in favour of the contractor. In case the contractor fails to provide the bank guarantee, the government will reserve the right to price the gas at USD 4.2/mmbtu. The law ministry also said that broad principles of the bank guarantee could be as per what RIL has proposed. This is crucial, as it indicates RIL may not contest the government's idea of a bank guarantee. According to the law ministry's note, RIL has proposed the following: 1. Separate guarantees to be provided by RIL on a quarterly basis based on advance projection for sales. 2. The value of every bank guarantee to be calculated as the difference between the projected price and USD 4.2/mmbtu. The government's share of royalty and profit petroleum will be deducted. 3. At the end of every quarter, the value of the bank guarantee to be adjusted against actual gas sales  Each bank guarantee will be valid for 24 months but can be extended if arbitration or any other legal disputes are still ongoing. The law ministry' also states that it would be best to arrive at a resolution as  the arbitration and  legal processes are unlikely to conclude by April 1, 2014, when the new price comes into effect. All eyes now on the Cabinet Committee on Economic Affairs (CCEA) to take the final call on this matter.