The Telegraph
Since 1st March, 1999
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Tug of war over natural gas pricing policy

New Delhi, May 31: The inter-ministerial tug-of-war over the nation’s natural gas pricing policy seems to be going in favour of the power and fertiliser ministries with the petroleum ministry losing ground on the issue.

The government is not likely to give in to the petroleum ministry’s demand to raise the ceiling price for ONGC-produced natural gas to Rs 3,850 per thousand cubic metres from the current level of Rs 2,850 which would constitute an over 50 per cent jump.

Sources say the power and fertiliser ministries are not willing to accept a ceiling price beyond Rs 3,100 per thousand cubic metres which represents a mere 14 per cent rise. Current indications are that this is the price that the government may settle for and that too with a rider.

The power and fertiliser ministries argue that a sharp increase in the price of natural gas would prove to be disastrous both for the power and fertiliser sectors and the regulated price regime should continue.

The proponents for a low price regime have pointed out that the cost of production of natural gas for ONGC is only $ 1.02 per MMBTU (million British thermal units). After factoring in a 35 per cent profit, which is considered the norm in the upstream hydrocarbon sector, the price of the gas works out a little over 2,600 per thousand cubic metres. Ironically, this is even lower than the present ceiling of Rs 2,850.

Sources disclose that the government is likely to set up a committee to examine the cost issue and then fix the ultimate price. In case the price paid to ONGC is higher than that worked out by the committee, the extra amount would have to be deposited in the government’s coffers.

A senior official told The Telegraph that “the question boils down to the survival of two vital sectors of the economy versus the profit level of ONGC which in any case has crossed the Rs 10,000 crore mark.”

However, some changes in the existing policy are likely to be made in the pricing policy of ONGC’s joint venture fields which will benefit the oil major.

ONGC is made to pay the private companies that are its partners the difference between the market price and the subsidised price at which the gas from these fields is sold to consumers.

Sources disclose that the government is likely to wind up this arrangement so that the gas from the joint venture fields can be sold directly at the market price. These include the Tapti and Panna Mukta fields in the western offshore region where ONGC has to pay Reliance and British gas the difference between the market price and the lower sale price.

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