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UPDATE 1-Reliance not to change D6 gas price from April 1 -govt source

Source : REUTERS
Last Updated: Fri, Mar 28, 2014 14:11 hrs

* To sell at $4.2/mmBtu until new govt takes over -source

* Output from D6 at about 13 mmscmd-govt source (Adds background)

By Nidhi Verma

NEW DELHI, March 28 (Reuters) - Reliance Industries and its partners should continue to sell gas at current prices from its east coast block following a delay to a new pricing regime ordered by India's election authority, a government source said on Friday.

Reliance's five-year gas sales pacts with sectors including fertiliser makers and power will expire on March 31, requiring buyers to sign new contracts for supplies from its D6 block in the Krishna Godavari basin.

"$4.2 (per million British thermal unit or mmBtu) will continue to be in force until the Code of Conduct is lifted," said the source, referring to rules restricting policy shifts before elections. India goes to the polls on April 7.

The oil ministry informed the upstream regulator - the Directorate General of Hydrocarbons (DGH) - of the pricing decision after it was cleared by Oil Minister Veerappa Moily on Friday.

"The DGH will have to now inform the companies concerned," said the source, who requested anonymity due to the sensitivity of the matter.

Both Reliance and the upstream regulator declined immediate comment.

The Election Commission asked the government to defer an increase in gas prices until the completion of the five-week general election in the middle of May.

The cabinet last year approved a formula, linking prices of locally produced gas with global benchmarks, that could have nearly doubled gas prices from the current $4.20 per mmBtu.

India's main opposition party Bharatiya Janata Party (BJP), which surveys show is on course to become the largest parliamentary party, has said it would review the gas pricing formula if elected.

Demand for gas in India far outstrips domestic supply, but the government has kept prices below global market levels for producers of fertiliser and electricity, deterring investment in domestic exploration and production.

India, the world's fourth-largest energy consumer, has few energy resources other than coal, which meets 56 percent of its energy needs.

Gas output from the D6 block has fallen sharply since 2010. Reliance says the decline is due to the geological complexity of the block while the government believes contractors have failed to drill the promised number of wells.

The block, in which BP has a 30-percent stake and Canada's Niko Resources owns 10 percent, currently produces about 13 million cubic metres of gas per day, the source said.

A fertiliser industry source said industry buyers would sign an agreement with Reliance at $4.2 per mmBtu, once minor details regarding marketing margins and credit terms are resolved.

(Reporting by Nidhi Verma; editing by Douglas Busvine and Jason Neely)



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