The Telegraph
Thursday , January 3 , 2013
Since 1st March, 1999
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Global price cue for domestic gas

New Delhi, Jan. 2: A high-level government panel has suggested fixing the price of locally produced natural gas on the basis of an average of international rates.

Besides, the panel said the government should drop the present practice of sharing revenues after a contractor is allowed to deduct costs and go for one that did not deduct expenses.

Finally, the Prime Minister-appointed Rangarajan panel said the duration of tax holiday should be extended to 10 years from seven.

The panel in its report made public today suggested first taking an average of the market price in the US, Europe and Japan and then averaging it out with the price of imported liquefied natural gas to fix the sale price of domestic gas. The formula suggested should be applicable to future pricing decisions, the report said.

Under the proposed formula, the price of Reliance Industries’ KG basin gas could work out to $8 per million British thermal unit (mBtu) compared with $4.2 per mBtu at present.

Reliance has demanded that the gas price be raised to $14 a unit, but the oil ministry has said the rates were fixed till 2014.

The panel has proposed modifications in the revenue sharing model.

Existing pacts allow contractors to recover their cost before giving the government its share in the revenues, leading to allegations of discrepancies on the part of the producers.

The panel proposed to dispense with cost recovery in favour of sharing of the overall revenues.

“The share will be determined through a competitive bid process for future PSCs (production sharing contracts),” the report said.

“The bids will be made in a bid matrix, in which the bidder will offer different percentage revenue shares for different levels of production and price levels.”

This will ensure the government will get progressively higher revenues as the contractors earn more.

Demand for natural gas will increase from 194 million metric standard cubic metres per day (mmscmd) in 2011-12 to 286 mmscmd in this fiscal, according to the 12th Plan document recently accepted by the National Development Council.