Ministry refers RIL's marketing margin issue to regulator

Moneycontrol Bureau

The Petroleum Ministry has rejected Reliance Industries (RIL) contention that charging of marketing margin on gas was an issue between the buyer and the seller and has said that the Petroleum and Natural Gas Regulatory Board (PNGRB) will take a final call on the issue.
In a letter to RIL executive director P. M. S. Prasad, on Thursday, the Ministry wrote that the question of the quantum of marketing margin applicable on sale of gas by any marketer has since been considered in the Ministry and a decision has been taken to refer the matter to the PNGRB.
Earlier the petroleum ministry, which had long held that the marketing margin was a bilateral issue between the buyer and seller of gas, referred it to the PNGRB after user industries like fertilisers sought a clarification on the legality of the levy.
The ministry's technical arm, the Directorate General of Hydrocarbons (DGH), too, is of the opinion that RIL should share a part of these earnings with the government. It wants the marketing margin to be added to the gas sales price of $4.20 per mmBtu and profit-sharing between the contractor and the government to happen at the combined rate of $4.335 per mmBtu.
At present, RIL and the government split profits at the gas sales price of $4.20 per mmBtu after deducting the project cost.
However, according to sources, in a letter written to the ministry on December 20, RIL has said that even gas utility GAIL India charges up to $0.18 per mmBtu as a marketing margin on gas it transports and none of it is shared with the government.
RIL, while defending its decision to impose a marketing margin over-and-above the government-approved sale price for KG-D6 gas has said that the levy was to cover for the risk and cost associated with marketing of gas.
The Mukesh Ambani-controlled company has also contested DGH's view, saying the marketing margin was a cost levied beyond the gas delivery flange and as such, was not regulated by the Production Sharing Contract (PSC).
    
The PSC provides for fixation of the gas price at the delivery point-- the point at which an upstream operator transfers custody of gas to a marketing and transportation agency. That point for the eastern offshore KG-D6 gas is Kakinada, in Andhra Pradesh, and the government had in 2007 approved a gas price of $4.205 per mmBtu at the delivery point.