Govt allows affiliate companies to buy gas produced from non-regulated fields

The government on Wednesday allowed affiliate companies to buy gas produced from non-regulated fields as part of giving complete marketing freedom to the operators.

The move is expected to benefit Vedanta and Reliance Industries, though the plea to raise the price of gas produced by PSUs ONGC and Oil India from their nominated fields failed to cut much ice with the Modi government. They will get $1.79 per mBtu, which is half their production costs.

Between 2016 and 2019, the government had granted pricing freedom to all fields except those farmed out to state-owned Oil and Natural Gas Corporation and Oil India on a nomination basis.

But there were restrictions on marketing, including a ban on the affiliates of producers buying the fuel and, in some cases, a state nominee being mandated to offtake the gas.

The Cabinet Committee on Economic Affairs (CCEA) approved the natural gas marketing reforms, oil Minister Dharmendra Pradhan told reporters here.

Vedanta will benefit as its prolific Rajasthan block has only pricing freedom. With GAIL being the sole buyer nominated by the government, the Anil Agarwal-company had found it hard to negotiate an optimal price.

Reliance will benefit from the sale of gas from its Krishna-Godavari basin.

Last year, Reliance and its partner BP had bid out 5 mscmd (million standard cubic metres per day) from their KG-D6 block to firms such as Essar and GSPC. Reliance and BP were keen to buy the gas but rules did not allow. Now, India Gas Solutions Pvt Ltd, an equal joint venture of Reliance and BP, will join the fray.

However, there will be rebidding if only the affiliates participate, Pradhan said.

A policy debate on who can participate in an auction to sell gas has raged for about three years after Reliance Industries sold all gas from its coal bed methane field in Madhya Pradesh to itself in an open auction.

The auction, held in September 2017 for gas to be produced until March 2021, prompted an inquiry by the government. The oil ministry had found that Reliance violated the government policy by selling gas to itself.

Pradhan said the CCEA approved a standard procedure for price discovery through a transparent and competitive e-bidding as also “permitting affiliates to participate in the bidding process for the sale of gas”.

“This will add 40 million standard cubic metres per day of production from Krishna-Godavari basin and other areas to the current output of 84 mscmd,” he said.

Participation of affiliates will “facilitate and promote more competition in marketing of gas,” an official statement said. In February 2019, the government gave ONGC and Reliance pricing and marketing freedoms from the yet to be produced fields.

“However, rebidding will have to be done in case only affiliates participate, and there are no other bidders,” it said.

A policy debate on who can participate in an auction to sell gas has raged for about three years after Reliance Industries sold all gas from its coal bed methane field in Madhya Pradesh to itself in an open auction. The auction, held in September 2017 for gas to be produced until March 2021, prompted an inquiry by the government.  The Oil Ministry had found that Reliance violated the government policy by selling gas to itself.

Last year, Reliance and its partner BP had bid out 5 mscmd (million standard cubic metres per day) from their KG-D6 block to firms such as Essar and GSPC. Reliance and BP were keen to buy the gas but rules did not allow. Now, India Gas Solutions Pvt Ltd, an equal joint venture of Reliance and BP, will join the fray.

However, there will be rebidding if only affiliates participate, Pradhan said.

"The objective of the policy is to prescribe a standard procedure to discover the market price of gas to be sold in the market by gas producers, through a transparent and competitive process," Pradhan said.

He added that it permits affiliates to participate in the bidding process for the sale of gas and allows marketing freedom to certain field development plans (FDPs) where PSCs already provide pricing freedom.

Pradhan said the policy aims to provide a standard procedure for the sale of natural gas in a transparent and competitive manner to discover market price by issuing guidelines for sale by the contractor through e-bidding. "This will bring uniformity in the bidding process across the various contractual regimes and policies to avoid ambiguity and contribute towards ease of doing business," he said.

In February 2019, the government gave ONGC and Reliance Industries pricing and marketing freedom for yet-to-be-developed discoveries and agreed to levy a lesser royalty in case of state-owned firms raising production from existing fields.