New Delhi: In its evaluation of gas pricing guidelines in accordance with the Rangarajan formula, the govt is likely to also examine the issue of a proposed consistent price.
Because there are various regimes appropriate to gas pricing in the country, a committee under C Rangarajan, then chairman of the Prime Minister’s Economic Advisory Council, had preferred a consistent price. It had argued that the basic difficulty in assessment for determining the government’s share was that there was no single gas cost.
The panel he chaired had proposed a formula that would have more than doubled the price of domestic gas to rate of $8.4 for every million thermal units (mBtu), to apply similarly to all sectors regardless of their prioritization for supply under the Gas Utilisation Policy.
The new govt had made the decision to put the execution of these suggestions on keep hold till Sept 30, awaiting a more detailed evaluation. Though, petroleum minister Dharmendra Pradhan has denied any move to set up another committee for reviewing the Rangarajan guidelines. “These are simple speculations,” he said.
India’s domestic natural gas production is divided in 3 board categories: APM (administered price mechanism) & non-APM gas from nominated fields of national oil Companies; pre-Nelp (New Exploration Licensing Policy) gas and Nelp gas. These different categories are being assigned under diverse gas utilisation policies & at different costs.
India consumed 121 million standard cubic metres a day (mscmd) of natural gas in 2013-2014. That comprised 48 mscmd of APM gas (at $4.2 a mBtu), 7.5 mscmd of non-APM gas from nomination fields (at $4.2-5.2 an mBtu), 13.5 mscmd of Nelp gas (at $4.2 an mBtu), 10 mscmd of pre-Nelp gas (at $3.5-5.7 an mBtu), 41 mscmd of R-LNG (regasified liquefied natural gas, at $12.9-17.4 an mBtu) and 0.3 mscmd of CBM (coal bed methane) gas (at $5.1-6.7 an mBtu).
Some experts say it might be possible but not sensible to have a uniform gas price. “Gas prices have to be attractive sufficient for supporting long-term exploration activities. Also, the cost of production varies widely among on-shore & off-shore areas,” R S Sharma, former Oil & Natural Gas Corporation chairman, said.
He said another argument towards the move is that there is need for gas priced at a high rate of $15 an mBtu. “Even city gas distribution is viable at this price. Purchasers are willing to spend. So, why not have differential pricing?” he asked.
However, many experts also do share Rangarajan’s views on the benefits of uniform pricing. “Any non-uniform pricing becomes discretionary, both in deciding the prices & allowance of the output,” said Debasish Mishra, senior director at consultancy firm Deloitte. “Rather than debating no matter if gas pricing should be uniform or non-uniform, we should debate how soon we should move to market-determined pricing.” Only the latter, he said, would be able to entice fresh expense in domestic exploration & production.
The earlier govt had on January 10 informed a new domestic gas pricing regime based on Rangarajan’s formula. However, general elections were announced prior to the new cost could be formally announced. The Election Commission asked it to leave the decision to the new govt & revision of rates was put off to July 1. The new govt decided on June 25 to defer a decision until October, awaiting wider consultation.
Reliance Industries Ltd, operator of the eastern off-shore KG-D6 block, & its partners, BP of the UK & Niko Resources of Canada, had on May 9 served a pre-arbitration notice on the govt, alleging the failure to apply the earlier decision on a gas price increase efficient April 1 was preventing the sanctioning of investments of around $4 billion.
This was followed by a formal Notice of Arbitration, served on June 17 by RIL-BP-Niko, naming London-based David Steel as their arbitrator. A month later, on July 17, the govt appointed former Supreme Court judge G S Singhvi as arbitrator on its behalf, formally joining the process.
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