Finance Ministry warns petroleum ministry against bank guarantees from RIL

Finance MinistryThe union finance ministry has reportedly asked the petroleum ministry not to accept bank guarantees from Reliance Industries Ltd (RIL) until differences over the pricing of gas from the company's KG D6 block are resolved.

The finance ministry has cautioned that accepting bank guarantees from the Mukesh Ambani-led company could would weaken the government's case in the on going arbitration proceedings against the company.

The government believes that RIL is responsible for the drastic decline in gas production from the KG D6 block. Gas production from the block has declined to 10 mmcmd from 65 mmcmd three years ago.

A senior official from the finance ministry, which had previously given in principle approval to the bank guarantee mechanism, said that the petroleum ministry would have to ensure that this bank guarantee remained valid till the completion of the arbitration process.

Speaking on the topic, the official added, "We are also not sure, how petroleum ministry is calculating the investment multiple along with the profit petroleum, royalty and other revenues from the enhanced gas prices."

The finance ministry's warning is definitely an embarrassment for Petroleum Minister Veerappa Moily said in November that bank guarantees of the sort the ministry was asking RIL to pay could effectively resolve any differences that arose over oil & gas production.