RIL likely to change gas sale agreements

Reliance Industries Ltd, which had sent draft gas sales purchase agreements to its fertiliser consumers, is likely to tweak some of the major clauses in the agreement to address the concerns raised by these companies. But what looks certain is that the sales agreements with individual companies, necessary to begin gas supplies, are unlikely to be ready before mid- April. Fertiliser companies including IFFCO, Kribhco, Indo-Gulf, Nagarjuna Feriilser, Zuari Agro, Chambal Fertilisers and Oswal Fertilisers, who have been in discussions with Reliance Industries for gas supplies from the Krishna Godavari basin, had raised some serious objections to the clauses put forth in the draft agreement. The main objections raised by the fertiliser companies refer to the “take or pay” clause and the penalties they have to bear in case they fail to buy the committed amount of gas. According to the draft agreement, while the fertiliser companies are liable to pay such penalties, RIL as a gas supplier has no such obligation even if there is a shortfall in gas supplies. After a meeting of member companies here last week to discuss the concerns, Fertiliser Association of India (FAI) DG Satish Chandra wrote to the fertiliser secretary that the take or pay clause should be imposed on both the supplier and the consumers equally. Or else, fertiliser companies could be exempted from paying these penalties if RIL manages to sell that gas without incurring a loss, that is, by selling the gas to other consumers. According to a person closely associated with the discussions on the draft agreement, RIL has agreed to tweak this clause and redress this issue. RIL proposes to adjust the payments against actual consumptions, the person who did not want to be named said. “It will work like a refund, adjusted against actual billing,” he said. RIL’s argument against a penalty on itself as the supplier stems from the fact that it was not given either the marketing or the pricing freedom for the gas, even though this was provided under the government’s own policy on exploration. The other issue raised by the FAI was to do with multiple agreements. Fertiliser companies had said they were willing to sign only one agreement (or agreements with the transporters Reliance Gas and Transportation Infrastructure Ltd and GAIL and gas supplier RIL that could be read as a single agreement, kicking off at same time over the same period) with the fuel supplier instead of multiple agreements with fuel supplier and transporter. RIL had suggested two agreements, one, with itself as the gas supplier and two, with its pipeline company RGTIL. RIL, however, may not have an option in this case as the regulator has insisted on separate companies for marketing and production in the gas sector.