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Indian Government Will Not Decide RIL Gas Prices

The Indian government is unlikely to tell the Bombay High Court today that it has the power to decide the selling price of natural gas produced from Reliance Industries' Krishna Godavari basin, going by its stated position in the Parliament so far

The Indian government is unlikely to tell the Bombay High Court today that it has the power to decide the selling price of natural gas produced from Reliance Industries' Krishna Godavari basin, going by its stated position in the Parliament so far.

A division bench hearing the case had on Tuesday asked the government to give a clear 'yes' or 'no' on whether the Mukesh Ambani-promoted firm has the freedom to price its gas as it wants. The government counsel had sought time till Friday to file a reply.

RIL's case against honouring its gas supply contract with Anil Ambani's Reliance Natural Resources Ltd (RNRL) would get a much needed shot in the arm if the government claims the right to price the gas.

RIL stands to gain or lose more than Rs 77,000 crore from its two cases against RNRL and state-owned National Thermal Power Corporation (NTPC).

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The government's stand on the issue in the Parliament has been that it does not interfere in the sale price of gas, but only approves the "formula or basis on which the prices shall be determined for the purposes of determining the government take."

"In terms of the provisions of production sharing contract (PSC) signed under the NELP regime, the government does not fix the price of gas," minister of state for petroleum and natural gas Dinsha Patel had said in November last year:

Six months later, Patel had reaffirmed this position when asked why his ministry did not respond to a request from the power ministry to intervene in the matter of non-supply of gas by RIL to NTPC.

His senior, minister for petroleum and natural gas Murli Deora, also made the same point last month. Asked whether the government was planning to increase the price of gas from RIL's Krishna Godavari fields, he said that RIL was free to reach a price on its own as long as it was made in a transparent manner.

Government approval was required for the formula to calculate the "government's take" of the production profits, he clarified. "The formula or basis on which the prices shall be determined for the purposes of determining the government take is required to be approved by the government." he clarified. RIL and RNRL have been fighting over the need for government approval of the final selling price of gas from the fields.

While RIL has claimed that the government needs to approve such a price, RNRL has been saying that the so-called approval applies only to the formula for calculating the government's share of the profits.

Elaborating on the reason for the government's objection to the RIL-RNRL deal, Patel told the Parliament that RIL had proposed a price of $2.34 per unit not only for the sale of gas to RNRL but also for all other purposes.

"The approval was sought for the price which was to be used for cost recovery, profit sharing and all other purposes under the Production Sharing Contract," he said. The proposal was turned down by the government on the ground that the price was too low. The government will get 10% of the profits initially.

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