New Delhi: The Oil Ministry has returned a bank guarantee of Rs. 509.55 crore submitted by Reliance Industries Ltd (RIL) to get a higher price for natural gas it produces from the eastern offshore KG-D6 field, saying the new rate has not been announce, according to sources.
The surety, given on April 10, covers the incremental revenue RIL would have received in the April-June quarter if the price of gas were to double to $8.4 per million British thermal units.
Sources said RIL provided the bank guarantee even though the Election Commission had asked the government to defer implementing the new rate, which was to have come into effect from April 1, until completion of the general elections.
The Oil Ministry returned the guarantee, saying the new price has not been notified and RIL would have to submit the surety as and when it is announced.
An RIL spokesperson did not reply to an e-mail seeking comment.
The Cabinet Committee on Economic Affairs (CCEA) approved a new formula for pricing all domestically produced natural gas in June last year.
In December, it said the new rate will be applicable for the main field in the KG-D6 block only if RIL submits a bank guarantee equivalent to the higher revenue it would get from the new gas price. This surety would be encashed if it was proved the company deliberately suppressed gas output, depriving RIL of the incremental revenue.
Output at the Dhirubhai-1 and 3 gas fields at about 8 million standard cubic meters a day is a fraction of the 80 mmscmd output planned for this time.
RIL says geological complexities such as unanticipated water and sand ingress were responsible for the output drop.
However, the Oil Ministry and its technical arm DGH feel RIL did not drill the committed quota of wells and slapped a $1.8 billion penalty on the company. They also wanted to deprive the firm of the higher rate for gas unless it was proved otherwise.
Sources said the gas pricing guidelines issued on January 10, based on the CCEA decision, state that the new rate would be applicable for gas from D1&D3 subject to submission of a bank guarantee in a manner to be notified separately.
The government, the ministry said, is yet to notify the procedure and therefore, submission of the bank guarantee at this stage was uncalled for.
Moreover, because of the Election Commission's restriction, the advance notification of the gas price for every quarter has not been implemented.
The government will notify the price after the model code of conduct is lifted and will finalise the supplementary agreement with RIL for D1&D4 fields and the format of bank guarantee to be issued, they added.