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India – New Price Of Domestic Natural Gas.

13 November, 2014

 

The Government of India approved a formula for determining the price of domestic natural gas produced in India. On the basis of the approved formula and with effect from November 1, 2014, the price of domestic natural gas has been increased to USD 5.61 per mmBtu. A copy of the Government notification can be found here.

 

The price, determined under the new guidelines is applicable to all domestic natural gas produced in India except (i) in cases where prices have been contractually fixed for a certain period of time, till the end of such period, (ii) where the production sharing contract provides for a specific formula, and (iii) pre-NELP production sharing contracts which do not provide for Government approval of formula/basis for gas prices.

 

With respect to gas produced from D1 and D3 discoveries in KG-DWN-98/3, in view of the arbitration going on between the contractor, that is, Reliance and the Government of India, the difference in the new gas price and the erstwhile price of USD 4.2 per mmBtu will be credited to a gas pool (escrow) account maintained by GAIL, which will be paid out depending on the outcome of the pending arbitration/legal proceedings. [Reliance had initiated arbitration against the Government’s decision to disallow it cost recovery of approximately a total USD 2.4bn after the Comptroller and Auditor General of India alleged that Reliance breached some terms of the production sharing contract with the Government. Under the NELP, the Government of India allows operators to first recover their costs from oil and gas revenue, and subsequently share profits with the government. Reliance failed to meet targets for gas generation in the D1 and D3 gas fields in the KG-D6 block. Reliance’s reasons that unexpected geology caused the decline in output were rejected by the oil ministry, which believes output has fallen due to non-drilling of the promised number of wells.]

 

The new gas price will be reviewed every six months.

 

LexCounsel

 

For further information, please contact:

 

Alfred Adebare, Lex Counsel Law Offices
aadebare@lexcounsel.in

 

Energy & Project Finance Law Firms in India

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