OilMin allows RIL, GAIL freedom to fix marketing margin

Rates determined by PNGRB will thereafter be notified by the govt

In a significant development, the Oil Ministry has given freedom to firms, including Reliance Industries and GAIL, to fix the marketing margin they want to charge on sale of natural gas to consumers other than urea manufacturing units and LPG plants.

The Ministry, which has been for past two years grappling with the issue of marketing margin charged by gas producers and sellers like Reliance Industries and GAIL India, last month ordered that the margin to be charged over and above the gas sale price be fixed between seller and buyers in sectors other than urea and LPG.

Official sources said the Ministry on November 21 asked the oil regulator PNGRB to determine the marketing margin for supply of domestic gas to urea and LPG producers through its independent process.

The rates determined by the Petroleum and Natural Gas Regulatory Board (PNGRB) would thereafter be notified by the government, they said.

In other cases, the Ministry ruled that the marketing margin should be determined by the buyer and seller and any complaints about exercise of monopoly power should be addressed to PNGRB and/or the Competition Commission of India.

Presently, marketing margins charged by producers and sellers of gas are in the range of 11 cents to 20 cents per million British thermal unit (mmBtu).

Fertiliser plants had opposed RIL charging 13.5 cents per mmBtu as marketing margin over and above the government fixed price of $4.205 for KG-D6 gas.

The Oil Ministry on December 26, 2011, asked PNGRB to determine the quantum of marketing margin chargeable on sale of natural gas to end consumers by a marketing entity.

The Board on February 14, 2012 issued notices to companies like RIL and GAIL seeking information on cost of production or import or acquisition of natural gas, the selling price of the fuel to end consumers and itemised detailed break-up of the difference between the two.

However, later in the year, it refused to fix the marketing margin saying it cannot decide on the issue as natural gas as a product has not been formally notified by the government for adjudication by the Board, sources said.

On a second reference, the PNGRB advised the government to stipulate a uniform marketing margin for all sellers of domestic gas, while giving free hand to sellers of imported liquefied natural gas (LNG) and firms selling CNG to automobiles and piped cooking gas to households.

This was strongly opposed by RIL, which said the stipulation was discriminatory.

RIL, whose 13.5 cents per million British thermal unit as marketing margin on KG-D6 gas is higher than 11 cents charged on gas produced by ONGC/OIL but lower than 20 cents that GAIL charges for western offshore gas and imported LNG, said there was no legal basis to regulate the levy.