Gas producers to Pradhan: Implement Rangarajan formula price
5 Dariya News
New Delhi 25-Aug-2014
Ahead of the gas-price review panel's first meeting here Monday, India's top hydrocarbon producers have told Petroleum Minister Dharmendra Pradhan they are willing to accept the price based on the Rangarajan formula notified by the previous government, even as a comprehensive review of the pricing policy is undertaken."The January 2014 notified Domestic Natural Gas Price guideline gives a lower price than what the operators deem as the correct market price. AOGO members are willing to accept this as a first step in the move to a market price. This pricing mechanism needs to be implemented immediately," Association of Oil and Gas Operators (AOGO) secretary general Ashu Sagar said in a lettter to Pradhan, a copy of which has been obtained by IANS."Even as we implement the notified natural gas price guideline, a comprehensive review of the pricing policy should be undertaken to firmly establish the transition to a market that determines gas prices base," he added.
Describing the postponement implementing revised gas prices as a significant setback for the upstream oil and gas industry, the AOGO said a " huge uncertainty has been introduced for exploration companies. They have no clarity on the price or the basis of price on which they can sell the production in the event of discovery, reducing enthusiasm otherwise exercised for additional exploration.""The companies with discovered fields are not in a position to monetize the same unless there is a definite price and price basis that keeps their discoveries commercial," the letter added. A four-member committee of secretaries (CoS) to review the gas-pricing formula will examine the whole range of issues related to gas pricing, including the Rangarajan formula, which was approved by the previous UPA government, but could not be implemented ever since the Election Commission barred it from announcing the price in the period leading up to polling.
The committee has invited representatives of both producers and consumers Monday to discuss the issue.The Cabinet Committee on Economic Affairs had on June 25 decided to defer implementation of the Rangarajan formula till Sep 30 and come up with a new regime by Oct 1.A new price based on the Rangarajan formula would have most likely doubled the gas price to $8.4 per unit from April 1.The Mukesh Ambani-led Reliance Industries (RIL) and its partners British oil giant BP and Niko Resources have served an arbitration notice on the government on revising their gas price, which expired on March 31.The new government has decided to defer the implementation till September-end to hold wider consultations with various stakeholders.There has been opposition to the Rangarajan formula from various quarters on account of its likely effect on electricity tariff, urea cost, CNG rates and piped cooking gas price.According to AOGO, while crude oil under the government's production sharing contract (PSC) gets sold at internationally benchmarked prices, described as on import parity pricing basis, there is a strong protest when the same logic is applied to gas prices."All present and past efforts to suppress gas prices are in violation of the provisions of the PSC, putting the sanctity of contract at grave risk," the AOGO wrote.