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Rediff.com  » Business » OilMin behind EC stepping in on RIL gas price: Experts

OilMin behind EC stepping in on RIL gas price: Experts

March 23, 2014 12:01 IST

If the Election Commission decides to put on hold a gas price revision for Reliance Industries Ltd (RIL), it will set a precedent not just for the government's decisions on pricing, but also for policy decisions already taken but pending implementation due to procedural delays. 

The government had fixed a price of $4.2 a million British thermal unit (mBtu) for KG-D6 gas for five years ending March 31 this year. On April 1, 2009, when the new price became applicable, the model code of conduct was in place for a fortnight.

However, this time, the difference was the Ministry of Petroleum and Natural Gas had decided to refer the matter to the Election Commission, said an official. 

In 2007, an empowered group of ministers had fixed a price of $4.2/mBtu for RIL. The contract with the government required price approval from the government a year before the commencement of production.

RIL started producing crude oil from the block's MA field in 2008. A year later, it started producing gas from KG-D6. The process of signing gas sales and purchase agreements began in 2008. These agreements were for five years. 

The last Lok Sabha elections started on April 16, 2009. This time, the elections will start on April 7; the model code of conduct is in place from March 5. "A decision for holding the hike will directly favour the Aam Aadmi Party (AAP) and the Congress.

This is because the AAP can claim it is because of its efforts that the decision has been put on hold, while for the Congress, it is not a price cut, but an increase, which could get it only some negative votes," said an expert on condition of anonymity.

The new pricing formula, notified by the government on January 10, had a caveat - it required the submission of a bank guarantee for the new pricing regime to become applicable to D1 and D3 gas discoveries. 

"The issue yet to be decided was only the bank guarantee, not the price. Many decisions in the government are taken, but their implementation has to undergo a process. So, the matter need not have gone to the Election Commission at all," says a government official who has been part of gas pricing decisions.

"A party in the name of model code of conduct is politicising the implementation of a cabinet decision," said RIL in a statement. RIL issued a third instalment of a video series, uploaded on YouTube, to counter allegations of collusion between the UPA and RIL on gas price. "Something as simple to understand should have been implemented in a routine manner. But it is sought to be packaged  into a controversy ensnaring the EC." 

Montek Singh Ahluwalia, deputy chairman of the Planning Commission, was the first to publicly suggest the matter be referred to the Election Commission. 

The official said, "Officials are not willing to take controversial decisions on their own for fear of inviting corruption charges; so, the matter was obviously referred to the Election Commission." With the confusion on the pricing front still prevailing, it was unclear whether, in case the decision was taken after two months, the government would pay RIL and its partners BP and Niko, as customers would be unwilling, he said. 

In July 2013, the Cabinet had taken a decision on the price rise, based on a formula suggested by a panel headed by the Prime Minister's Economic Advisory Council Chairman, C Rangarajan. In December, the government had cleared the decks for RIL, too, ensuring a higher gas price in return for a bank guarantee. According to the Cabinet decision, the government would encash the bank guarantee if it was proven the company hoarded gas from KG-D6 "intentionally". 

Confusion On Gas Pricing Front

  • If the EC decides to put on hold a gas price revision for RIL, it would set a precedent for pricing decisions of the government and policy decisions taken but undergoing procedural delays
  • The govt had fixed $4.2 an mbtu price for KG-D6 gas for five years expiring March 31
  • Last Lok Sabha elections had started on April 16. This time the elections start earlier from April 7 and the model code of conduct is in place from March 5
  • A decision for holding the rise would be directly favouring the AAP and the Congress
Shine Jacob & Jyoti Mukul in New Delhi
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