Power and fertilizer companies may have to fork out substantially higher price for gas being consumed from state-owned oil companies like Oil and Natural Gas Corporation Limited (ONGC) and Oil India Limited (OIL).
Price of gas supplied to companies in these two sectors by ONGC and OIL from its nominated gas fields may be hiked to $4.2 per million British thermal unit (mBtu) from prevailing $1.82 per mBtu.
Gas prices for power and fertilizer sectors will be done in three tranches over next three years. But for small and medium enterprises apart from city gas distributors, the hike may be immediate and in one go.
Petroleum Minister Murli Deora will shortly move a proposal before the Union Cabinet seeking revision in gas prices for that being supplied from ONGC and OIL.
Gas being sold at administered rates is much lesser than market price and below cost of production. This price is applicable to fields given on nomination basis prior to new exploration and licensing policy (NELP). About 97 per cent of ONGC’s total gas production is sold under APM, while in case of OIL it is approximately 85 per cent.
“The oil ministry has prepared a cabinet note to hike price of the gas sold under administered price mechanism (APM),” a petroleum ministry official said. The sectors have been divided into two categories --- power, fertilizer and others. The hike for the first group will be done in three stages spread over three years, while for others it will be a one-time hike, he added.
Petroleum ministry will send the note for cabinet approval in couple of weeks, the official said adding that the decision has been taken after consultation with all concerned sectors. Fertilizer and power ministry are opposed to any hike in gas price as the tariff of fertilizer products and electricity is bound to go up. Both these sectors have already been complaining of high cost of inputs like gas, coal and naphtha.
Gas sourced from other fields such as Reliance Industries Limited (RIL)-operated D6 block in Krishna Godavari basin costs $4.20 per mBtu, while gas from British Gas group-operated Panna, Mukta and Tapti fields are priced at $5.73 per mBtu. Companies pay $5.50 per mBtu for gas from Ravva field operated by Cairn India in Andhra Pradesh. RIL gas price has become the bone of contention between the two Ambani brothers, Mukhesh and Anil Ambani.
R S Sharma, chairman and managing director of ONGC said that more than 95 per cent of gas produced is sold to GAIL at APM price. “Considering the cost of production (as per cost audit records) and return on capital employed as per tariff commission, ONGC incurred an under-recovery of Rs 4,745 crore in 2008-09. There was a loss of Rs 2,423 crore during the year even ignoring the return on capital employed. These under-recoveries are being met out of ONGC’s oil business,” he added.
At present, ONGC produces 463 billion cubic metres (BCM) of natural gas from 111 fields, according to data available on its web site.
After the price revision of gas sold under APM, we expect to earn Rs 200 crore annually on the top line and nearly Rs 120 crore on the bottom line, said T K Ananth Kumar, director finance of OIL.
Most of the gas produced from its fields in Assam is sold under APM, he added. OIL produced 2268.38 mmscm of natural gas in 2008-09, according to a petroleum ministry publication. It sells gas to Brahmaputra Valley Fertilizer Corporation Limited, North Eastern Electric Power Corporation Limited (NEEPCO), Assam Petrochemicals Limited and tea gardens among others.
Source: www.mydigitalfc.com
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