Gas row: ADA firm blinks; agrees to pay mkt margin to RIL

Last Updated: Friday, October 9, 2009 - 12:08

New Delhi: Less than a month after it stopped paying marketing margin to Reliance Industries, Anil Ambani Group firm Reliance Infrastructure has agreed to pay the levy, although under protest, and has asked the Mukesh Ambani firm to resume natural gas supplies to its power plant.

R-Infra on October 7 wrote to RIL saying it was instructing its "bank to effect full payment of the invoice (raised by RIL for supply of KG-D6 field gas to its Samalkot power plant) including the marketing margin element."
The company, which had paid USD 0.135 per million British thermal unit in marketing cost to RIL for over four months without protest, had on September 15 written to the Mukesh Ambani-firm saying it will no longer pay the "unauthorised and illegal" levy.

R-Infra defaulted on payment of Rs 12 lakh in marketing margin on the 0.56 mmscmd gas supplied to Samalot in the first half of September, leading to RIL sending a notice of suspension of supplies.

"We request you to withdraw the suspension notice dated September 28 and confirm immediate resumption of the supply of gas," R-Infra Vice-President Kamal Kant wrote to RIL.
On the same day, the Anil Ambani Group firm also wrote to ministries of power and petroleum informing of the decision and reiterating its position that the levy was "unauthorised and nothing but abuse of its (RIL`s) monopolistic position."

An ADAG group spokesperson did not immediately offer any comments on the issue.

While no comment could be obtained from RIL immediately, sources in the know said the company was likely to withdraw the notice of suspension of supplies in the next few days.

Anil Ambani Group, which is seeking natural gas from RIL at USD 2.34 per mmBtu price committed in the 2005-family agreement, had in April signed contracts to buy the KG-D6 gas at the government-approved price of USD 4.20 per mmBtu for its 220-MW Samalkot power plant in Andhra Pradesh.

R-Infra shut the Samalkot plant for 35-day maintenance on September 28 and RIL had supplied gas to it till then.

"We reiterate that the marketing margin being levied by you is unauthorised and uncalled for and is not in accord with the Empowered Group of Ministers/Government decisions," R-Infra wrote to RIL. "... the payments made against the invoices so far raised and future invoices as well are/will be under protest and without prejudice to our rights and contentions."

The company wanted RIL to confirm immediate resumption of gas supplies upon the completion of plant maintenance and said it has taken up the "legality and justification" of the levy of marketing margin with Petroleum Ministry.

To the government, it wrote that RIL had not undertaken any marketing exercise for entering into gas supply agreements as the allocations were made by the government through EGoM. The price approved by the EGoM did not provide for levy of any marketing margin by RIL.

"All the users of gas from KG-D6, including fertilizer and power projects are suffering huge losses on this account, a major part of which is passed on to the exchequer in the form of subsidy and to the consumers of power and fertilizers," R-Infra wrote to the ministries.

"We, however, will in the meantime pay the marketing margin levied by RIL under protest," it added.

RIL had justified the levy saying it was essential to cover risks and costs incurred in marketing of the gas. It had stated that the levy was to cover risks like sellers` liabilities in case of non-supply, customers drawing less than their quota, non-payment of dues and settlement of disputes and claims on quality, quantity or terms of the GSPA.

RIL had initially proposed USD 0.12 per mmBtu as margin to cover for marketing risk but when customers sought multiple changes in the gas sale contract that increased its risks and liabilities, the levy was raised to USD 0.15 per mmBtu.

The same was again discussed with fertiliser plants (who were given the top most priority to receive KG-D6 gas) and the Department of Fertilisers and finally a marketing margin of USD 0.135 per mmBtu was agreed with the buyers.

Samalkot is one of the 8 power plants identified in Andhra Pradesh to receive the gas. The allocation of the plant was originally 0.19 mmscmd but was raised on a `fall-back` or temporary basis to 0.56 mmscmd as not all identified clients for the initial 40 mmscmd of output from K-G D6 fields were taking their quota.

Bureau Report



First Published: Friday, October 9, 2009 - 12:08

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