OREANDA-NEWS. September 8, 2011.  The Oil Ministry has rebuked its technical arm, the DGH, for reopening the issue of the marketing margin that RIL charges on selling KG-D6 gas, but may seek the Law Ministry's opinion to ascertain if the firm can be asked to share those revenues with the government.

The ministry has conveyed its displeasure to the Directorate General of Hydrocarbons (DGH) at the highest levels over the reopening of a long-settled issue, sources privy to the development said.

It feels the DGH is wrongly interpreting the contract, which clearly states that the government is entitled to get a share of the price of gas at the delivery point. On the other hand, the marketing margin charged by the Mukesh Ambani-led firm is to intended to cover the risk involved in carrying gas from that delivery point to customers' door-step.

The DGH recently asked Reliance to add the USD 0.135 per million British thermal units marketing margin to the KG-D6 gas price of USD 4.205 per mmBtu for the purpose of calculation of the government's profit take.

Sources said the ministry feels a Pandora's Box will be opened if the DGH move is approved, as public sector firms like GAIL India, too, have been charging a marketing margin, which is higher than what is being levied by Reliance, for several years now.

The same principle will have to be applied to gas produced from state-owned Oil and Natural Gas Corp (ONGC), which is marketed by GAIL. But to settle the issue once and for all, the ministry plans seek an opinion from the Law Ministry, they said.

The DGH demand also runs contrary to the stance the Oil Ministry took on the issue in Parliament last year. The then-Oil Minister Murli Deora had on February 24, 2010, told the Rajya Sabha that the marketing margin was a bilateral issue between the seller (Reliance) and the buyers.

The government approved the price for gas sales at the delivery point of the KG-D6 field as per the provisions of the Production Sharing Contract inked with Reliance.  "The said price (USD 4.2 mmBtu) does not include any charge beyond the PSC delivery point. The marketing margin (levied by Reliance) is beyond the delivery point and arises as a result of the gas sale and purchase agreement signed between the seller and the buyer," Deora had stated.

The PSC provides for sharing of revenues from the sale of gas between the government and the contractor at the said price at the delivery point. It does not envisage sharing of revenues earned by the contractor from marketing margins with the government, he had further said.

The marketing margin was in lieu of the risks and costs incurred by the contractor on marketing the gas. It is to cover risks like seller liabilities in case of non-supply, customers drawing less than their quota, non-payment of dues and settlement of disputes.