Arbitration looms in $130m PMT gas dispute with GAIL

Vol 10, PW 8 (10 Aug 06) Midstream & Downstream

Indian Oil is not the only PSU giving problems to the PMT consortium.

GAIL is also proving to be a recurring headache. With GAIL the dispute is over payment of the accumulated difference between the regulated price and the PSC price of PMT gas for a period of nine months.

We are told that the total amount claimed by the PMT consortium is $130m. A consortium source tells us a demand notice was sent to GAIL about two weeks ago, asking for the money plus interest.

We understand the consortium was compelled to take this step because talks with GAIL have been fruitless. Adds a source: The demand notice gives GAIL 30 days to pay.

If they dont pay the next step will be taken in line with the PSC provisions. This next step, it turns out, will be an arbitration notice to GAIL.

Dispute on this issue dates back to June 2004 when the consortium started billing GAIL at $5.57 per mmbtu for Tapti gas as against the government regulated price of $3.11, in line with the PSC provisions allowing a price hike after seven years of production. But GAIL continued to pay the old price.

From February 2005, again in line with the PSC, a new gas price of $5.73 per mmbtu was charged to GAIL for Panna and Mukta gas. But again GAIL continued to pay at the regulated price of $3.11 per mmbtu.

This continued up to 31st March 2005, when the consortium began direct marketing, again in line with the PSC terms. The biggest chunk of money is on account of Tapti gas because the price revision clause kicked in much earlier than for Panna and Mukta gas, says a source.

We are not asking GAIL to pay anything out of the way. We are just asking them to stick to the PSC provisions on price revision.

If they show no inclination to pay we have no choice left but to invoke the PSC provisions to settle this dispute. The PMT consortium hopes that GAIL will pay within the time set by the demand notice.

Arbitration, if it comes to that, will be heard in India.