<div>Ending months of uncertainty, the Cabinet on Wednesday night (19 December) decided to allow Reliance Industries to double the price of natural gas from April provided the firm furnishes a bank guarantee to cover its liability if gas hoarding charges against it are proved.<br /><br />The bank guarantee, which will be equivalent to the incremental revenue that RIL will get from the new gas price, will be encashed if it is proved the company hoarded gas or deliberately suppressed production at the main Dhirubhai-1 and 3 (D1&D3) fields in the eastern offshore KG-D6 block since 2010-11.<br /><br />The Cabinet Committee on Economic Affairs (CCEA) decided that the "contractor (RIL) will be allowed to sell natural gas from D1&D3 at revised price from April 1, 2014. The sale will be permitted on the basis of a bank guarantee to be furnished by RIL in favour of the Government for the incremental gas rate," Oil Minister M Veerappa Moily told reporters here.<br /><br />The CCEA headed by Prime Minister Manmohan Singh decided there will be no change in the Rangarajan formula of pricing domestically produced gas - both conventional and non-conventional fuels such as coal-bed methane and shale gas - at an average of international gas hub rates and the cost of liquefied natural gas (LNG) imported into India.<br /><br />"There will be no cap or floor for the price," Oil Secretary Vivek Rae said.<br /><br />According to the formula, the gas price on April 1, 2014, for all producers including state-owned Oil & Natural Gas Corp (ONGC) and private firms such as RIL will be about USD 8.4 per million British thermal units against USD 4.2 currently.<br /><br />Gas is a crucial input for the power and fertiliser sectors and every dollar increase will raise the cost of production.<br /><br />Rae said the format of the bank guarantee will be vetted by the Law Ministry and a supplementary agreement will be signed with RIL by next month for furnishing and execution of the guarantees. <br /><br />Prodded by the Finance Ministry, the Oil Ministry had initially proposed to deny the new gas price until RIL either made up for the shortfall in output during past three financial years or it was proved that the company was not responsible for failing to meet production targets.<br /><br />The issue had held up notification of the new gas pricing formula.<br /><br />As a way out, it was proposed that RIL and its partners BP plc of UK and Canada's Niko Resources be asked to give bank guarantees for the incremental revenue they would get until the issue is resolved through arbitration and validation by independent international experts.<br /><br />The government approved the Rangarajan formula in June.<br /><br />The Finance Ministry wanted to change the approved formula by excluding the price of spot LNG purchases, which it said was highly volatile. This would have reduced the gas price to USD 8.1.<br /><br />Moily said the CCEA today decided that "no change needs to be made in the early decision of CCEA on including spot prices in computation of gas price. Also, no cap or floor on gas price is required to be stipulated."<br /><br />In the run-up to the Cabinet decision, the Finance Ministry had sought to know if the government's position on the reasons for the fall in gas output at KG-D6 would be diluted by accepting the bank guarantees.<br /><br />Also, it felt the bank guarantees would run into USD 9 billion during the duration of the arbitration, but Rae said the oil ministry believes the bank guarantee, which is to be given on a quarterly basis, would not accumulate to such an amount.<br /><br />(Agencies)<br /><br /> </div>
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