OilMin preparing Cabinet note for 44% rise in APM gas

The Union petroleum ministry is ready to take the issue of price revision in administered price mechanism (APM) gas to the Union Cabinet, with a recommendation for a 44 per cent increase in the price, retrospective from April 1, 2009.

This would benefit government-owned Oil and Natural Gas Corporation (ONGC) and Oil India Ltd. The proposed rise in the price of natural gas sold under the APM by these companies would take it to $2.6 per million British thermal unit (mBtu).

The ministries of fertiliser and power have, however, opposed any price hike in APM gas. The two sectors together account for 75 per cent of APM gas consumption. "We have received comments from the ministries concerned and a final note for the approval of the Cabinet will be sent," said a petroleum ministry official. The APM gas price hasn’t been raised since July 2005, when it was increased by 20 per cent.

The increase would mean an increased fertiliser subsidy burden. The retail prices of fertiliser are capped by the government and any increase in input cost is offset as subsidy. The difference between cost and the maximum retail price (MRP) is released as fertiliser subsidy to manufacturers and importers. The fertiliser subsidy from April till mid-November of 2009 was Rs 38,760 crore. In case of power, thoughm any increase in input can be passed on to consumers.

According to the draft note, the petroleum ministry is proposing a price of $2.6 per mBtu, against $1.8 per mBtu now. The gas produced from Reliance Industries Ltd's KG-D6 field, allotted to it under the New Exploration and Licensing Policy (Nelp), is sold at a base price of $4.2 per mBtu.

ONGC incurred an underrecovery of Rs 4,745 crore during 2008-09 on its gas revenues of Rs 5,800 crore. The proposed increase will help ONGC in cutting its losses. 

APM gas is produced from the ‘nominated’ fields, allotted (to government companies) before introduction of the Nelp in 1999.

At 45 million standard cubic metres a day (mscmd), APM gas currently accounts for over 34 per cent of the country’s 130 mscmd gas availability (which includes the latest production from Reliance Industries’ Krishna-Godavari basin). However, the share of APM gas in total availability has been falling gradually.

Source: Business Standard

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