India May Block Higher Gas Price for Reliance, Document Shows

India will seek to prevent Reliance Industries Ltd. (RIL) from benefiting from a doubling in natural gas prices by capping rates at its biggest fields, according to a draft proposal seen by Bloomberg News and confirmed by two government officials with direct knowledge of the matter.

The oil ministry has prepared a note for the country’s Cabinet asking for approval to order Reliance to sell gas from the D1 and D3 areas in the KG-D6 block, off the country’s east coast, at the current price of $4.20 per million British thermal units until a production shortfall is met or the government is satisfied output from the area wasn’t reduced intentionally, one of the officials said, asking not to be identified because he isn’t allowed to speak to the media.

The Cabinet in June approved a new formula for calculating gas prices from April 1, 2014, almost doubling rates for the locally-produced fuel. The move prompted some political parties to demand a review of the decision. Oil Minister Veerappa Moily said July 11 the rates would apply to every producer in the country.

Oil Secretary Vivek Rae, the most senior civil servant in the ministry, didn’t answer two calls to his office seeking comment.

Production from the D1 and D3 fields has dropped 77 percent to about 14 million cubic meters a day from more than 60 million in 2010, according to Reliance. The company planned a peak output of 80 million cubic meters a day. It has said production fell because the fields are more difficult to extract gas from than initially estimated.

To contact the reporter on this story: Siddhartha Singh in New Delhi at ssingh283@bloomberg.net

To contact the editor responsible for this story: Sam Nagarajan at samnagarajan@bloomberg.net

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