WHAT IS KRISHNA GODAVARI BASIN?
As the name implies, this refers to the area broadly enclosed by the deltaic basins of the two major rivers in Andhra Pradesh Krishna and Godavari. It includes part of the Bay of Bengal into which these rivers drain.
The area has been identified as one of India's biggest oil and gas fields, several times the size of Bombay High.
How is Reliance Industries involved in the KG basin?
Under the government's New Exploration and Licensing Policy (NELP), various blocks in identified oil and gas fields were offered to private operators on lease for exploration and production. RIL won the bids for 12 such blocks in the KG basin in 2000.
Under the NELP, private operators sign a production sharing contract (PSC) with the government, which sets out the terms and conditions under which they operate their lease, including the share of revenues that would accrue to the government.
Creation of a MARVEL!!!!
This is KG-D6, the deepwater block in the Bay of Bengal, which has the potential of reducing India’s fuel import bill by 20% or Rs 55,000 crore. Seven years ago, in 2002, Reliance made the largest gas discovery here. This gas field can produce 550,000 barrels of oil equivalent or nearly 40% of India’s current oil and gas production. Spread across 330 square kilometres, the reservoir of KG-D6 is located 2 kilometres below seabed, which is another 1.2 kilometres below sea-level, far too deep for humans to access.So, almost straight out of a sci-fi movie, high precision operations are carried out by robots. A single mistake, as simple as that of a screw or a valve being ill-fitted, can result in a loss of billions of dollars. While Reliance has won kudos from the world’s E&P industry, the commissioning production in six and a half years from the time of discovery versus the average of nine years and at a cost that is the third lowest in the world.
What RIL/RNRL/NTPC fuzz is all about?
How is the Anil Ambani group involved (RNRL)?
In 2003 RIL announced that group company Reliance Energy Ltd (REL) would be setting up a gas-based power plant at Dadri in western Uttar Pradesh for which gas would supplied from RIL's KG basin production.
In 2005, however, the group broke up with each brother acquiring control of different business areas. While the oil and gas business went to elder brother Mukesh, Anil had control of the power business.
What is the MoU often referred to?
In 2005, RNRL and RIL signed a memorandum of understanding (MoU) on the terms under which gas would be supplied for the Dadri project . This MoU specified that the price at which the gas would be supplied would be the same as the price at which RIL would supply gas to an NTPC project. NTPC had invited global bids for supply of gas in 2003 and RIL finally won the bid and was issued a letter of intent by NTPC in June 2004 but the contract was yet to finallised?
Now, RIL argues that the $2.34 per unit price is not applicable to its deal with RNRL for various reasons.
First, gas prices had since the 2005 MOU risen sharply and as well as exploration cost due to escalation cost due to high renting charges of deep water rigs and many other factors..
Second, it has not concluded a deal with NTPC on that price so that there is no price to follow.
Third, it says under the PSC signed with the government, the government has the final say on the price at which it can sell gas to third parties and in fact can even dictate to whom the gas should be sold.
RNRL tried to intervened in RIL-NTPC case-
RNRL supplies at USD 2.34 price depends on NTPC case....
After making such hue and cry by RNRL, NTPC had moved the Bombay High Court seeking 12 mmscmd gas from RIL, which had emerged winner in a global competitive bid quoting a price of USD 2.34 per mmBtu
NTPC moved the Supreme Court on 5th September2009, challenging a Bombay High Court decision that allowed RIL to amend its petition on the gas dispute citing the government’s pricing policy.
As per the PSC, the valuation should be done on the basis of Government approved formula/price. According to Government approved formula, the price of KG D-6 gas should be $4.2 per mmbtu. Therefore, Argument of valuating at $2.34 per mmbtu itself nullifies. As far NTPC price is concerned, it has never been approved by the Government and was not a "concluded contract".
New deal-
Sep. 25, 2009- NTPC signed a pact with Mukesh Ambani-led Reliance Industries to buy a part of natural gas allocated to it from K-G D6 fields at a rate of USD 4.2 per mmBtu. NTPC will buy 0.61 million metric standard cubic meters of gas a day for its plant in Anta in Rajasthan.
Private disputes over National property?
The most significant aspect of the recent Bombay High Court ruling on the sharing of gas from the KG basin between RIL and Reliance Natural Resources Ltd (RNRL) is that the judges completely refrained from making any value judgement on the government’s formal claim before the court that “the Appellant and Respondent cannot settle between themselves how gas, which is a national asset, to be utilised for the welfare of the nation, is to be distributed..
Will India afford to let lower natural gas price of $2.34 per mmBtu prevail as the rate will hinder development of a natural gas industry in the country??
open for discussion...........
