Reliance Proposes Higher Marketing Margin in Gas-Sale Accords

March 23 (Bloomberg) -- Reliance Industries Ltd., India's most valuable company, has proposed to increase the marketing margin of gas to be sold to fertilizer makers, an official of the industry grouping said.

The margin has been increased to 15 cents per million British thermal units in the revised draft contract from 12 cents per million Btu earlier, Satish Chander, director general of the Fertilizer Association of India, said by telephone from New Delhi today.

"We are hoping the marketing margin will be brought down as there doesn't seem to be any reason for increasing it," Chander said.

Fuel-starved fertilizer makers, which India has designated priority customers for gas, haven't been able to reach agreement with Reliance on the supply of the fuel. The price of gas was set by the government at $4.2 per million Btu, excluding taxes and transportation costs, for crude oil equal to or more than $60 a barrel, the Oil Ministry said Dec. 4.

Reliance declined to answer e-mailed questions.

Pending issues, including supply-related liability, may be resolved this week, Chander and other officials said.

The fuel-supply clauses weren't changed in the draft agreement sent to fertilizer makers last week, which states that Mumbai-based Reliance won't be liable for supply disruptions and that buyers must pay for committed purchases even if they don't take the gas, Chander said.

"Let's just say we are still resolving that issue and we hope to be ready to sign the contracts this week," Chander said. "Reliance has told us gas supplies will start from around the second week of April. Once supplies start, plants can start operating at higher capacities."

Rupee Payment

The explorer has agreed to let fertilizer companies, including Tata Chemicals Ltd. and Nagarjuna Fertilizers & Chemicals Ltd., pay for gas in Indian rupees. Reliance will charge the companies in dollars and payments will be made in rupees at the exchange rate prevalent on that day, Chander said.

"The issues are nearly resolved," Oil Secretary R.S. Pandey, the senior-most bureaucrat in the Oil Ministry, said by telephone from New Delhi today. "The contracts will probably be signed this week."

At its peak, output from Reliance's KG-D6 field will double the availability of gas in the country. Fertilizer makers and power plants currently use more expensive naphtha and imported liquefied natural gas as fuel.

"The fertilizer sector will sign an agreement this week for buying a total of about 15 million standard cubic meters a day," U.S. Jha, chairman of Rashtriya Chemicals & Fertilizers Ltd., said by telephone from Mumbai today. "This will be a five-year contract."

The gas sale and purchase agreement will be signed with Reliance, Jha said. The gas transportation accord will be signed with Reliance Gas Transmission Infrastructure Ltd., Reliance's cross-country pipeline unit, while another agreement will be signed with GAIL India Ltd. to supply the gas to the fertilizer plants, he said.

To contact the reporters on this story: Rakteem Katakey in New Delhi at rkatakey@bloomberg.net Archana Chaudhary in Mumbai at achaudhary2@bloomberg.net .