One of India's major gas producers has turned to letters of credit (L/Cs) to ensure that urea manufacturers purchasing gas from them pay at a new price.

Reliance Industries maintains that the new price applies to supplies between 1st April and 30th June, but the fertiliser companies producing urea say that newpricesmust be fixed and officially approved by the government.

Price hike

The Indian authorities have agreed a new price - all but double the old price - but it has yet to be officially approved and the urea buyers say that the price increase cannot apply retrospectively.

The urea producers have been buying gas from Reliance at a rate of US$4.2 per unit for the last five years under a contract that expired on 31 March 2014. A committee meanwhile recommended anew priceof US$8.34 per unit.

Official notice

But while this price has been agreed in principle by the government as the new rate as of 1 April 2014, official notification of this has not been issued for political reasons.

As a result, Reliance has sought to obtain L/Cs for US$4.1 per unit more for every unit to be supplied.

The gas producer claimsthat the old rate is invalid and that the L/C will cover the shortfall between the new price and the old price.

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