Reliance crosses major hurdle to D6 gas contracts

Vol 11, PW 12 (18 Oct 07) Midstream & Downstream

Late last week Mukesh Ambani-controlled Reliance Industries crossed a major hurdle on the tortuous road to signing firm sales contracts for D6 gas.

In a little publicised meeting on October 11, oil secretary MS Srinivasan personally handed over a one and a half page letter to Reliance CEO and petroleum business president PMS Prasad setting out the pricing formula approved a month earlier on September 12 by a cabinet panel led by foreign minister Pranab Mukherjee. Why did it take so long to issue the formal letter after the cabinet decision A source reports that the Mukherjee panel’s decision was first sent to the law ministry so it could draft the formal letter to Reliance taking care to plug all loopholes.

“Bureaucrats like to be extra careful,â€‌ says an observer, “about covering themselves against the likelihood of anything going into dispute.â€‌ One such â€کplugged’ loophole relates to the possibility of Reliance selling D6 gas for more than $4.20/mmbtu - the government approved ceiling.

Says a source: “The letter says that if Reliance sells gas higher than $4.20/mmbtu the valuation for the purposes of â€کgovernment take’ will be higher.â€‌ He adds: “This was understood from the September 12 (federal cabinet panel) decision but the bureaucrats don’t want any ambiguity.

â€‌ The ministry’s letter also clarifies that the approval of the pricing formula is “without prejudiceâ€‌ to the final orders in the ongoing court battles between Mukesh-owned Reliance and brother Anil Ambani, as well as with NTPC. In May this year Reliance exchanged term sheets with five power stations and five fertiliser factories for a total 35.1m cm/d of D6 gas beginning mid-2008 till 2011-12.

With the pricing formula approved, Reliance wishes it could convert these term sheets into contracts. But will it See below.