Reliance Industries, partners take government to arbitration over gas pricing

MUMBAI Sat May 10, 2014 9:12pm IST

A man walks past a Reliance Industries Limited sign board installed on a road divider in Gandhinagar January 17, 2014. REUTERS/Amit Dave/Files

A man walks past a Reliance Industries Limited sign board installed on a road divider in Gandhinagar January 17, 2014.

Credit: Reuters/Amit Dave/Files

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MUMBAI (Reuters) - Reliance Industries Ltd (RELI.NS) and its partners in a gas block, BP Plc (BP.L) and Niko Resources (NKO.TO), said on Saturday they were taking the government to arbitration seeking implementation of higher gas prices.

The government in June last year approved a formula, linking prices of locally produced gas with global benchmarks, that could have nearly doubled gas prices from the current $4.20 per mmBtu from April 1.

The Election Commission, however, in March asked New Delhi to defer an increase until the completion of the five-week general election, results of which will be declared on May 16.

Reliance's five-year gas sale pacts with sectors including fertiliser makers and power expired on March 31, requiring buyers to sign new contracts for supplies from its D6 block in the Krishna Godavari basin off the east coast.

Reliance, India's second most valuable company controlled by its richest man Mukesh Ambani, and its partners issued the notice of arbitration to the government on May 9, the three companies said in a joint statement.

"The continuing delay on part of the Government of India in notifying the price in accordance with the approved formula for the Gas to be sold has left the Parties with no other option but to pursue this course of action," the statement said.

BP has a 30-percent stake and Canada's Niko owns 10 percent in the gas block.

A spokesman for the oil ministry could not immediately comment on the development.

Gas output from the D6 block has fallen sharply since 2010. Reliance says the decline is due to the geological complexity of the block, while the government believes contractors have failed to drill the promised number of wells.

Reliance, which operates the world's biggest refining complex in Gujarat, and its partners said without any clarity on gas prices they were unable to sanction planned investments of close to $4 billion this year.

Overall, the companies said, they were planning to invest $8 billion to $10 billion in the next few years to "significantly increase production" from the D6 block.

"In addition, this will also delay the ability of the Parties to appraise and develop other significant discoveries made last year," the companies said.

The Election Commission in March gave no reason for its move to ask the government to delay the price hike, but it can order any new decision to be put on hold if it's seen influencing voters or benefitting any particular political party.

Also, two petitions have been filed in the Supreme Court to strike down the gas price increase decision on grounds that it favoured a corporate house and was against the interests of the nation. The hearing in the case is continuing.

Demand for gas in India far outstrips consumption and domestic supply, but the government has kept prices below global market levels for producers of fertilizer and electricity, which has deterred investment in domestic exploration and production.

(Additional reporting by Devidutta Tripathy and Nidhi Verma in New Delhi; Editing by Sumeet Chatterjee, Andrew Heavens and Toby Chopra)

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