Nearly a month after a panel of ministers approved price of gas to be produced from Reliance Industries' [Get Quote] eastern offshore KG-D6 fields, the government on Thursday issued formal approval letter to the Mukesh Ambani firm.

"The letter approving a price of $4.20 per million British thermal unit (mBtu) for first five years of production from KG-D6 was issued by the Petroleum Ministry on Thursday," a source familiar with the development said.

An Empowered Group of Ministers headed by External Affairs Minister Pranab Mukherjee had on September 12 approved with minor changes a price formula proposed by RIL.

"The letter was issued after the Law Ministry vetted all legal issues," the source said.

RIL officials were not available for comments.

The approval will be for five years from July 2008, after which it would be reviewed again.

The source said the letter mentions that the price approval will be without prejudice to the NTPC vs RIL and RNRL vs RIL court cases.

State-run NTPC has taken RIL to court to get gas for its power plants at $2.34 per mBtu price the Mukesh Ambani firm had quoted in a 2004 tender. RIL says the contract was not concluded over certain provisions.

RIL is separately locked in legal battle with Anil Ambani Group, which as per a family split pact wants 28 million standard cubic meters per day of gas at NTPC tender price.

Sources said RIL, however, cannot immediately sign gas sales agreements with consumers in power and fertilizer sectors as the Bombay High Court in an interim order had restrained RIL from selling gas to anyone other than NTPC, ADAG or to itself.

RIL is to begin production of 40 mmscmd of gas from the KG-D6 fields off the Andhra cost from July 2008. Peak output is slated to touch 80 mmscmd later.

Of the initial production, Tata Power [Get Quote], Torrent Power [Get Quote] MahaGenco, GVK Power, Koneseema Power, RCF, Kribhco, Nagarjuna, IFFCO and Chambal Fertilizers will take 22.6 mmscmd in July-December 2008 period.

They will take 25.8 msmcmd in January-March 2009 period and 31.9 mmscmd in 2009-10 fiscal. This rises to 35.1 mmscmd in 2011-12. The remaining of the initial output of 40 mmscmd would go to state-run GAIL.