Petroleum ministry may insist on bank guarantees of $9bn from RIL

Petroleum ministry may insist on bank guarantees of $9bn from RIL

The petroleum ministry will reportedly seek bank guarantees of up to $9 billion from Mukesh Ambani-led Reliance Industries Ltd (RIL) to allow the company to sell gas produced from its KG-D6 block at the increased price.

In June, the government had approved the Rangarajan-led committee's recommendation for doubling the price of domestically produced natural gas from $4.2 per mmBtu to $8.6 per mmBtu, from April 2014.

But, many members of the government argued that RIL should not be allowed to sell gas at the increased price until it makes up for the shortfall in gas production at the KG-D6 block, which is situated off the east coast of India. Gas production from the block has dropped from 65 mmcmd to 10 mmcmd over the past three years.

Official sources said that the petroleum ministry will likely insist on bank guarantees of up to $9 billion from RIL as the government believes that the company is responsible for the steep drop in gas production from the block.

Criticism and warnings other ministries about the plan to accept bank guarantees from RIL may also force the petroleum ministry to amend the natural gas pricing guidelines, though it is yet to announce any such move. The finance ministry recently cautioned the petroleum ministry against accepting bank guarantees from RIL.

Speaking to reporters on the sidelines of the 12th Petro India conference in Delhi, Petroleum Secretary Vivek Rae admitted that the ministry has received comments from the finance ministry on the draft cabinet note on the KG-D6 gas pricing issue, but he didn't elaborate.

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