ENERGY AND POWER
20 Nov, 2012 11:57 IST
Note Opposing KG-D6 Gas Price Hike By RIL Withdrawn
PM appointed Rangarajan Committee is examining pricing of the fuel
“Yes, the note to EGoM has been withdrawn,” a top ministry official said. This was done in view of panel haded by Prime Minister’s Economic Advisory Council Chairman C. Rangarajan being asked to suggest “structure and elements of the guidelines for determining the basis or formula for the price of domestically produced gas, and for monitoring actual price fixation.”
Prime Minister had appointed the six-member panel to essentially look at the design of future contracts for exploration of of oil and gas. It had also been tasked to suggest pricing of natural gas.
Meanwhile, on 8 November, CAG had asked oil ministry not to approve any of Reliance Industries' investment plans for the flagging KG-D6 gas field unless the company gives it unfettered access to audit its spendings.
"It is well within the knowledge of the Ministry that any increase in capital expenditure is likely to have significant adverse impact on government's financial interests," CAG wrote to Oil Secretary on November 9.
RIL, it said, would get an additional $4.1 billion revenue if the rates are hiked from current $4.2 per million British thermal unit to import parity rates of $14.2-14.51 per mmBtu. The government on the other hand would get only $0.5 billion at current year production level of around 25 million standard cubic metres per day.
Sources said the ministry stated that a $10 rise in gas price would result in increase in subsidy paid on fertiliser and power by $6.3 billion.
The ministry, however, in the note did not state that RIL had modified its January request for a price revision to clearly state it is seeking rate revision only from April 1, 2014 when the current price is due to expire.
RIL first in June and then again on September 6 reiterated its demand for a price at par with the rate India is paying for import of liquefied natural gas (LNG) from April 1, 2014 when the current five-year period of $4.2 price expires.
It wants to price KG-D6 gas at 12.67 per cent of JCC, or Japan Customs-Cleared crude, plus $0.26 per mmBtu. At $110 per barrel oil price, gas will cost $14.23 per mmBtu.
Sources said the company has also proposed to price gas it plans to produce from coal seams, called coal-bed methane (CBM), from Sohagpur blocks in Madhya Pradesh according to the same formula.
The formula proposed by RIL for sale of gas from April 1, 2014 is the same at which Petronet LNG Ltd, the nation’s largest liquefied natural gas importer, buys 7.5 million tonnes per annum (30 million standard cubic metres per day) of LNG from RasGas of Qatar.
It currently gets paid $4.2 per mmBtu for the gas produced from its KG-D6 fields in Bay of Bengal. This rate is lower than what Cairn India gets in the neighbouring Ravva Satellite field in the same basin and UK's BG Group-operated Panna/Mukta and Tapti fields in western offshore.
RIL, which has been seeking a rate equivalent to import parity price for KG-D6 gas from April 2014, said the signed contracts for its and other fields gives government powers to approve but does "not entitle the government to fix the price of gas."
"We trust that the committee will make recommendations...which stipulates that all gas produced by the contractor will be sold at an arm's length market price," RIL wrote.
The company wanted the existing arrangement of profit sharing between explorers and the government to continue.
The six-member panel headed by the Prime Minister's Economic Advisory Council chairman may be veering around to the idea of changing the present system where firms like RIL are allowed to recover all their investment first before sharing profit with the government, thereby giving incentive to keep raising spending to delay government profit.