Dharmendra Pradhan needs to immediately announce new gas price: Barclays

5 Dariya News

New Delhi 27-May-2014

Listing what it called key issues needing "attention of the new petroleum minister" on the day Dharmendra Pradhan took charge of his new portfolio, Barclays analysts said in a report Tuesday that the minister needed to immediately implement the new gas price.As a priority, the multinational banking and financial services company said the new minister required to attend to the "immediate implementation of the approved and notified Rangarajan gas price formula" under which the price is likely to be almost doubled at $8.3 per unit.In March, when the time came to notify the new price for the quarter beginning April, the Election Commission advised its deferment till such time the national elections conclude.

Besides the unbundling of gas transmission and gas marketing activities to make pricing more transparent, Barclays said the minister needs to think about moving towards market pricing with minimal involvement of government after fiscal 2019.Calling for expediting approvals of production projects of Reliance Industries (RIL) and Cairn India, Barclays said two other matters requiring Pradhan's attention were quick decisions on allowing RIL to retain D-29, 30 and 31 discoveries in the eastern offshore, and on the company's current arbitration process on the disallowance of $1.8 billion cost recovery.Differences between Reliance and the Directorate General of Hydrocarbons (DGH) led to the petroleum ministry's order last October asking the company to surrender over 6,000 sq km area, including five discoveries, in its KG-D6 block because the company did not abide by deadlines.

The other issue stems from the problems of the RIL-led-consortium-operated KG D6 block in offshore Andhra Pradesh, the output from which has consistently fallen to around 10 million metric standard cubic metres a day since reaching a peak of 60 mmscmd in 2010.The consortium in April had furnished a bank guarantee that was mandatory for implementing the new gas price. But the ministry returned it saying it was not permitted to implement the revised price as yet.The guarantee was to be encashed if it is proved that the consortium hoarded gas, or was deliberately suppressing its production at the fields.

The ministry, in 2012, had imposed a penalty on the company for failing to produce gas in line with the pre-stated targets. But the consortium denied it, approached for arbitration, and said the fall was due to geological complexities and lower reserves.Regarding oil production, the issues requiring attention include fixing of cess on oil production at the current level and allowing recovery of exploration and development costs, Barclays said.