Relief for RIL, New Gas Prices to come into effect from May 12 – Moily

The on-going gas prices saga involving Mukesh Ambani’s Reliance Industries Limited (RIL) and the Ministry of Petroleum finally seems to have drawn to a close. After the close of the last electoral voting cycle on May 12th, the Election Commission will lift its model code of conduct clearing the way for gas prices to be allocated as per the Rangarajan Formula. What this means for the oil companies including RIL is that the new pricing (Which incidentally was supposed to be implemented from April 2014) which would work out to around $8/mmBtu against the current $4.2 — would have retrospective validity from April 2014.

Oil Minister and the man at the center of this saga, Mr. VeerappaMoily was quoted as saying, “When the proposal came to me, I rightly ordered that after the model code of conduct is lifted, price may be announced for the July-September quarter, 2014, and also for the April-June quarter, 2014, as per the approved guidelines by the Cabinet Committee on Economic Affairs.”

Moily also hit back at CPI (M) leader GurudasDasgupta who had made the controversial statement alleging collusion between the government and RIL over the issue of as prices. Dasgupta said, “Around 65% of the gas is produced by public sector companies and the remaining 35% by private or joint venture companies. RIL’s production constitutes only about 15% of the country’s total gas output. Therefore, the largest beneficiaries of the increased gas price are the public sector companies. As such, allegations that these decisions are intended to favour a particular company, namely RIL, are totally misplaced.”

Defending the oil companies including RIL, Moily said that the old prices $4.2 mmBtu were found to be commercially unviable. Also, there seems to be some sort of confusion about the commerciality of the fields in the KG and Cauvery basins. The bottom line with respect to the Oil & Gas sector is that exploration in naturally risky due to geological and technological challenges and while great returns can be expected, they’re never guaranteed. In spite of all the uncertainties and risks associated, many companies invest huge sums of money. As a result, the government considers itself responsible enough to compensate the aforementioned companies so that they’re perennially encouraged to invest in the Indian market which has vast amounts of untapped resources.

On the political front, Moily wasn’t hesitant to come out all guns blazing. He reiterated that it was during the NDA regime when Mukesh Ambani-led RIL entered into the production sharing contract for the KG D6 block. He also refuted the allegations made by GurudasDasgupta calling them false, baseless and misleading. He further added that there were some making noises against the government in order to derail the growth in the domestic sector. This, alleged Moily was done by parties with vested interests in foreign corporations determined not to see an energy independent India and keep it dependent on foreign oil.

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