RIL asked to club gas margin with sale price

In a surprise move, oil regulator DGH has asked Reliance Industries to include the marketing margin the company charges on sale of natural gas from its field to the approved gas price for calculating the government's share from the project.

The DGH wants the $0.135 per million British thermal unit margin that RIL charges to cover marketing risks of gas from Krishna Godavari basin-D6 fields to be added to the sale price of $ 4.20 per mmBtu for calculating royalty and profit share to the government, sources in the know said.

This runs contrary to the the Production Sharing Contract under which a contractor (RIL in case of D-6) can recover the capital and operating expenditure incurred on producing oil or gas from sale of the produce.

However, costs involved in marketing of oil or gas are excluded and a contractor is not allowed to recover the same from the sale proceeds.

Sources said DGH wants 5 per cent royalty payable to the government to be calculated at $4.33 per mmBtu price (sale price plus marketing margin), making this by implicit action the sale price from which RIL will recover the cost.

The price at which royalty is calculated is considered the sale price under PSC and the operator will recover all cost from this before sharing profits with the government.

While RIL spokesperson could not be immediately reached for comments, S K Srivastava, director general, Directorate General of Hydrocarbons (DGH) was not available for comments.