Not only will it bring to an end the face-off between RIL and the govt, it will also enable the firm to avail of the recently approved liberal gas pricing regime
New Delhi: Reliance Industries Ltd (RIL) will be withdrawing from its ongoing arbitration with the government on pricing of natural gas, a person privy to the discussions between the company and the oil ministry disclosed.
Not only will it bring to an end the face-off between the company and the government, it will also enable RIL to avail of the recently approved liberal gas pricing regime.
Withdrawing the arbitration relating to price fixation of gas is a pre-condition for availing of the new liberal pricing formula the government approved on 10 March.
An oil ministry official, who asked not to be named, said companies have indicated their willingness to go ahead with the field development after dropping the arbitration.
That process will be initiated after the Supreme Court reopens on 29 June after the summer break, the first person quoted above said.
RIL did not respond to an email sent on Tuesday.
Company executives had met oil minister Dharmendra Pradhan in April to discuss ways to resolve the pricing dispute and further development of its gas discoveries.
The companies sought arbitration due to the delay in implementing the previous UPA government’s gas pricing formula of June 2013 which could have potentially doubled the price to $8.4 a unit. The price revision was not implemented due to the 2014 national election.
The decision to withdraw the arbitration comes ahead of the consortium of RIL-BP Plc -NIKO Resources readying to finalize contracts for hiring equipment and oil field services for monetizing their deep water discoveries in the Krishna Godavari basin under the new liberal gas pricing regime.
The companies are keen to launch their field development plan without any further delay since work in the deep water field due to weather conditions is possible only in a few months in a year.
Following the easing of pricing restrictions on gas, Reliance invited expressions of interest from global oil field services companies with a deadline of 29 April to supply materials, equipment and services for developing the KG D6 block off the coast of Andhra Pradesh.
The tenders were invited on behalf of RIL and its partners BP Exploration (Alpha) Ltd, Niko (NECO) Ltd and Niko (NELPIO) Ltd.
This has to be processed through request for quotations for arriving at the cost of developing the field. After the boards of the three companies approve, it will then be submitted to the Director General of Hydrocarbons (DGH), said another person informed about the process.
Both officials declined to be identified as they are not authorized to speak on the subject.
To be sure, there have been signals from members of the consortium previously suggesting that they were willing to bury the hatchet.
In April, BP had welcomed the new pricing policy adopted for difficult-to-operate geological areas saying that it, along with its consortium partners, were “working with the government to progress activities in their blocks.”
BP is 30% partner in RIL’s 21 gas blocks, including in the KG- DWN-98/3, known as KG D6. Canada’s Niko Resources has 10% holding in KG D6.
To encourage fresh investments into the country’s natural gas reserves trapped in deep water, ultra deep water, high tension and high pressure areas, where progress has been stalled in the absence of a viable price, the cabinet on 10 March announced a new pricing formula, linking gas price to that of imported liquefied natural gas (LNG) and alternative fuels such as naphtha and coal.
The new pricing norms are specifically for gas from deep water, ultra deep water, high pressure and high tension fields. ONGC and Gujarat State Petroleum Corp. are the other companies having gas discoveries in such areas.
Accordingly, price of gas from such difficult areas has been fixed at $6.61 per million metric British thermal unit (mmBtu) for the 1 April to 30 September, 2016 period. This is more than double the prevailing price allowed for gas from other areas.
“There is considerable push through new policies to free up the sector and to encourage new investors and investments to come in. This is catching investor interest and the appetite seems to be there despite the fall in oil and gas prices over the past year,” said Anish De, partner and head of oil and gas, KPMG in India.
Oil minister Dharmendra Pradhan had said that the liberal pricing for gas under the new regime will only go to fields that are unencumbered of any legal case. “Any pending arbitration on pricing aspect has to be either withdrawn or concluded,” he had said in March.