The Hindu Business Line : Gas pricing: Govt panel flooded with divergent views

With divergent views emerging among the stakeholders on determining gas price all eyes are now on the Petroleum Ministry's committee set up to formulate transparent guidelines for approving a pricing formula for natural gas. Approval is necessary under the production-sharing contract since the Government is entitled to profit petroleum and royalty.

The committee has already received different views from different quarters. For instance, one of the major players in the oil and gas arena, Reliance Industries Ltd (RIL), has forwarded a view contrary to the Government's opinion that ideally prices ought to be determined through a transparent open competitive bidding process to discover gas price.

RIL has said that competitive bidding process was neither practical nor feasible for sale of gas. Submitting its views to the committee, the company is understood to have said that enforcing a bidding process for gas sale, apart from it not having been stipulated under the production-sharing contract, would restrict the ability of the contractor to obtain the best possible price by negotiations.

Contending that the gas price should reflect the market price to maintain equilibrium in terms of demand and supply, RIL is understood to have suggested that linkage with the Indian basket of crude oil imports was best suited for pricing natural gas, considering the fact that the gas industry here was yet to mature.

It has also proposed that the committee may, if it deems appropriate, provide flexibility within notified norms with appropriate floor and ceiling, while developing a gas price formula.

Valuation of gas

The production-sharing contract signed with the Government clearly differentiates between valuation of gas and sale of gas, RIL said, adding that for the purposes of valuation the PSC stipulates that the product has to be valued at `competitive arms length sale'.

The company, however, feels that valuation of gas could not be different than the sale price as it would then be detrimental to the profit share of either the contractor or the Government.

Meanwhile, RNRL, which has also proposed various options to the committee, has suggested that valuation of gas should be based on any other similar long-term pricing discovered in India, sources told Business Line. RNRL has been pitching for gas supplies from RIL at a price similar to that offered to the public sector National Thermal Power Corporation, which was through a competitive bidding process and for long-term supplies.

Caught in the cross fire on the issue of gas pricing between RIL and RNRL, the Petroleum Ministry had set up an internal committee work out a formula for gas pricing. Official sources said the committee has received the suggestions from the stakeholders, including BG India and GAIL.

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