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Pressure to cap gas price rises

Cost call

New Delhi, Dec. 15: The finance ministry in a note has stated that it wants a cap on the gas pricing formula as a sudden increase in prices is likely to make electricity and fertiliser costlier.

Its view is in opposition to the stand of the oil ministry, which considers prices to be flexible .

In fact, the North Block considers as erroneous the oil ministry’s interpretation of an earlier group of ministers’ ruling about the formula being flexible.

Even now, at $4.2 per million British thermal unit (mBtu) the price is not flexible — when global crude crosses $60 a barrel, the price gets capped.

The petroleum ministry had come out with a ready reckoner on July 5, a few days after a meeting of the group of ministers that paved the way for higher prices.

According to the reckoner, the indicative price for April-June 2013 was $6.83 per mBtu. It added that the pricing would be arrived at using a complex formula based on international spot prices and domestic price discovery rates and will vary from time to time depending on global gas prices.

The finance ministry has not only objected to the absence of a ceiling but also the use of spot prices in the formula on the grounds that they are very volatile and are never used in long-term gas pricing.

Earlier, the power ministry had come out strongly against hikes and argued that “the gas price for the power sector should be competitive to competing fuel i.e. coal” and demanded that the base gas price for power plants “should not be more than $5 per mBtu”.

In a note to the Prime Minister’s Office as well as the finance, petroleum and fertiliser ministries, the ministry had argued against hiking the price to $6.8 per mBtu from $4.2 per mBtu, pointing out that it would make commercial sense to price gas “commensurate with their price appetite” of the buyers and the prices sought are “not true representation of gas well-head prices”.

The power ministry had also gone on to argue that imported LNG prices might not reflect the true well-head price of conventional natural gas in the LNG exporting countries as it had an in-built premium over domestic prices in the exporting countries. It added that spot prices should in any case not be considered “as the price varies from cargo to cargo”.

Meanwhile, Reliance Industries has lodged a strong protest against a government move to snatch away an area containing five gas discoveries, saying the decision was a breach of contract, according to PTI.

The oil ministry had on October 28 ordered RIL to surrender 6,198.88 sq km of a 7,645 sq km area in its eastern offshore KG-D6 block, 15 per cent more than the 5,367 sq km the company had voluntarily offered to relinquish.

 
 
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