RIL, ONGC, BP, Cairn Demand Immediate Hike in Gas Price
Energy giants led by Reliance Industries, ONGC, BP and Cairn India today unanimously demanded an immediate hike in natural gas prices, saying current sub-market price of USD 4.2 was impeding development of over a dozen discoveries.
As the government began consultations with stakeholders on raising gas prices, gas producers and consumers met a committee of secretaries (CoS) separately with their pleas on the issue.
The panel, whose meeting was chaired by Power Secretary P K Sinha, gave a patient hearing to both sets and asked them to present their views in writing by August 28.
Expenditure Secretary Ratan P Watal skipped the meeting of the CoS to which Fertilizer Secretary Jugal Kishore Mohapatra is member and Rajive Kumar, Additional Secretary, Ministry of Petroleum and Natural Gas, is member secretary.
Kumar said there will be another meeting of the panel this week.
According to sources, while gas producers said as many as 10 Trillion cubic feet of gas cannot be developed at current below market rate of USD 4.2 per million British thermal unit, power generators said they cannot afford a rate more than USD 5/unit.
Fertilizer makers too stated that doubling of rates, as had been approved by the previous UPA government before its implementation from April 1 was postponed first by the Election Commission and then by the new BJP government till September-end, would lead to increase in subsidy.
While producers, who were invited separately, attended in full strength with the sole exception of Gujarat State Petroleum Corp (GSPC), consumer sectors were represented by their associations - Association of Power Producers and Fertilizer Association of India, besides some individual companies.
Sources said producers gave 35 minutes of their unanimous view to the committee, which throughout the session was mostly listening and offered neither counter suggestion nor argument.
Sinha suggested that the participants should send their written submission addressed to Oil Secretary Saurabh Chandra, who is not part of the committee, by Thursday morning.
The meeting was perfunctory with all operators in sync on issue of gas price except some vague remarks from state-owned Oil and Natural Gas Corp (ONGC) which acknowledged the fact that increase in gas price was required for both their existing production and new development but also mentioned that it was for the government to decide on a balanced rate.
Sources said producers reiterated that the sanctity of Production Sharing Contracts (PSC), which the government has entered into with them, should be maintained. The PSC provides for a market discovered gas price.
They also stated that the best option was the implementation of the 2006-07 recommendation of the Committee headed by PK Sinha, who was then Additional Secretary in oil Ministry, where it was stated that gas price should be discovered by asking consumers to bid.
Sinha as Power Secretary is now taking of protecting interest of consumers.
Association of Oil and Gas Operators (AOGO) told the panel that the future of exploration and production (E&P) industry will depend a lot on the gas price decision.
It insisted that the issue has be addressed urgently to bring back investors' confidence.
The Cabinet Committee on Economic Affairs had on June 25 deferred by three months the implementation of the Rangarajan formula that would have doubled gas price to USD 8.4 per million British thermal unit.
The Rangarajan formula, approved by the previous UPA government, was to be implemented from April 1 but was deferred by three months as general elections were announced. The NDA government on June 25 postponed its implementation by a further three months pending a comprehensive review.
Earlier this month, Oil Minister Dharmendra Pradhan had told the Parliament that the NDA government decided to review the pricing formula keeping in mind public interest and recommendations of the Parliamentary Standing Committee.
He had said a decision will be taken keeping in mind the interest of investors and public and a new formula will be announced by September 30. Till then, the USD 4.2 per mmBtu price will continue.
Parliamentary Standing Committees on Finance as well as Petroleum had called for a review of the formula suggested by the panel headed by Dr C Rangarajan, saying gas price should have some linkage with the cost of production.
According to the Oil Ministry, the cost of gas production varies between USD 1.86 per mmBtu to USD 4.31 per mmBtu but a cost-plus price would be perceived negatively by the market.
The gas price hike was deferred as the doubling of rates would have led to increase in cost of urea, power and CNG.
Every dollar increase in gas price will lead to a Rs 1,370 per tonne rise in urea production cost and a 45 paise per unit increase in electricity tariff (for just the 7 per cent of the nation's power generation capacity based on gas).
Also, there would be a minimum Rs 2.81 per kg increase in CNG price and a Rs 1.89 per standard cubic metre hike in piped cooking gas.
The increase in gas price would bring windfall for the government -- about USD 2.08 billion (Rs 12,900 crore) from additional profit petroleum, royalty and taxes accruing from doubling of gas rates, the ministry estimates.
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