National Auditor Comment on Gas Price Part of Draft Report: Reliance Industries

Reliance Industries Ltd (RIL) on Saturday said the Comptroller and Auditory General's (CAG) comment that the Mukesh Ambani-led company charged a rate in excess of the government approved price for its KG-D6 gas is part of a draft report which has not yet been finalised.

In a statement, RIL said a report of the CAG will come into existence when each audit para - including one on pricing of gas - "have gone through various stages of comments and clarifications from all concerned parties and the counter of the auditee under review".

RIL, however, did not refute the contents of the draft report that has been sent to the Ministry of Petroleum and Natural Gas as well as to the company for comments.

The CAG had in a draft report stated that RIL charged $4.205 per million British thermal unit as price of gas produced from its eastern offshore KG-D6 block instead of rounding off to two decimal points, i.e. $4.20 as was indicated by the company when it in 2007 undertook price discovery. (Read more)

On top of this sale price, RIL charged a marketing margin of $0.135 per mmBtu to cover for its marketing risks but did not include it for calculation of royalties and government's share of KG-D6.

RIL said, "Premature leak(s) by way of 'draft reports'... is/are harmful to any company and its global reputation."

RIL spokesperson Tushar Pania, who when reached by PTI on the draft CAG report had on May 28 as well as on May 29 offered no comments, in the statement on Saturday said government had in 2007 approved a pricing formula and not a specific price.

"RIL has consequently, since the commencement of production in April 2009, charged customers prices in accordance with the formula approved by the Government," he said in the statement.

Since the take of all the parties to the contract, including the government, was dependent upon the price, the company cannot charge/round off a price that is lower than the price calculated on the basis of the approved formula, he added.

On the issue of marketing margin, the statement said, "Marketing margin is a charge arising beyond the delivery point to cover costs and risks associated with the marketing of gas. It is charged by all gas sellers in India including by PSUs."

Marketing margin, it said, cannot be considered for "accounting purposes in an audit of the Production Sharing Contract (PSC)" since the operations of the contract end with the production and delivery of gas at the defined delivery point.