A committee headed by C Rangarajan, the head of the Prime Minister's Economic Advisory, has suggested linking the price of domestically-produced natural gas to international benchmarks such as US' Henry Hub as well as the average wellhead price at which India imports gas, government officials said.
"The formula balances interests of gas producers and consumers. Produces should have enough incentive to produce, but they should not be allowed to exploit consumers because gas is a scarce commodity," said an official with direct knowledge of the matter.
The government had asked the committee to examine the pricing of gas after Reliance Industries BSE -0.36 % and its partner BP wrote to the Prime Minister earlier this year, demanding that they be allowed to charge market price of KG-D6 gas.
RIL is selling gas at the government-determined rate of $4.20 per unit, which is about one-fourth the price of imported gas. The panel has suggested that a formula should be used to fix prices of domestically produced gas till a competitive gas market comes into being in India.
The panel accepted the principal of linking domestically produced gas rates with the price of a substitute, imported liquefied natural gas (LNG) but only after excluding liquefaction, transportation and re-gasification charges.
The committee has ruled out any immediate change in the price of natural gas produced from the Reliance-operated D6 block because the government had fixed its gas price for five years, a period which will end in March 2014, officials with direct knowledge of the matter said.
"The formula would apply prospectively and not for prices already approved," a source in the committee said. The committee has submitted its report to the Prime Minister. The panel's suggestion is in line with the oil ministry's thinking, a ministry official said.
"Former Petroleum Minister Murli Deora had rejected RIL's demand to raise gas price in October 2010 and the new Petroleum Minister Veerappa Moily has already said that no revision of gas price could be considered before 2014," an oil ministry official said.
The PM's office may seek the oil ministry's view on the report before placing it before the cabinet or the empowered group of ministers set up to decide on gas pricing, government officials said.
The PM had set up the panel to examine gas pricing besides reviewing the existing contracts following adverse comments from the Comptroller and Auditor General of India.
The CAG had said last year the oil ministry had not enforced contracts effectively and had overlooked lapses that adversely impacted the state's share of profit from fields.
Source: Economic Times
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