In a significant development, the government has given national oil companies, Oil and Natural Gas Corp (ONGC) and Oil India Ltd (OIL), freedom to price any additional natural gas produced from blocks given to them on nomination basis at market rates.
So far, all gas — current and future — produced from blocks given to ONGC and OIL was priced at government-controlled rates, called administered price mechanism (APM).
The petroleum ministry, in an order dated May 31, has now made a distinction between existing producing fields and new ones in the nomination blocks.
“ONGC and OIL would have the freedom to sell any production from new fields in their nominated blocks at non-APM rates,” the order said.
Even the price of APM gas from June 1 has been more than doubled to $4.2 per million British thermal units, on a par with the rate at which Reliance Industries sells gas from its eastern offshore KG-D6 fields.
“It has been decided that the price of APM natural gas produced by national oil companies (NOCs) be fixed at $4.2 per mBtu, less royalty. Hence, the APM price inclusive of royalty (to customers) would be $4.2 per mBtu,” the order said.
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APM gas, prior to June 1, was sold at Rs 3,200 per thousand cubic metres, or $1.79 per mBtu.
For customers in the Northeast, the net consumer price would be 60 per cent of the new rate, that is, $2.52 per mBtu. “The difference would be paid to ONGC and OIL through government budget.”
The government has also made a significant departure from the previous practice of pricing natural gas in rupees and has now decided to price it in US dollars.
“The price (of $4.2 per mBtu) would be converted to rupees per thousand cubic metres (mscm) at the RBI reference exchange rate of the month previous to the month during which supply of APM gas is made. The price in rupees per mscm would be adjusted every month on the basis of RBI reference exchange rate,” the order said.
This rate would be excluding cess, transportation charge, marketing margin/service charge and taxes.
“As regards the existing producing fields, the production of ONGC and OIL from these, including any additional production, would be considered as APM gas and sold at APM rate,” the order said.
The order said the government had also decided that company marketing the APM gas, GAIL India Ltd, had been allowed to charge a marketing margin of Rs 200 per mscm.
ONGC and OIL would, however, not have the freedom to choose their customers. “The sale of APM and non-APM gas produced from nominated blocks would be in accordance with the government’s decisions regarding commercial utilisation of gas,” the order said.
In case of reduction in availability of APM gas, supplies to customers would be reduced on a pro-rata basis.
To meet the deficit in supply of APM gas, GAIL and other oil marketing companies marketing non-APM natural gas would supply non-APM gas, subject to availability and connectivity, to connected APM customers on priority, provided they were willing to pay the higher non-APM price, it added.
The Cabinet had last month approved raising gas prices from Rs 3,200 a thousand cubic metres ($1.79 per mBtu) to Rs 6,818 per thousand cubic metres ($3.818 per mBtu). After adding royalty, the prices for user industries would be Rs 7,500 per thousand cubic metres (Rs 7.5 per cubic metre) or $4.2 per mBtu.
The rise in gas price would also lead to an increase in the cost of fertiliser production and power generation. However, fertiliser prices will not rise as the the sector is subsidised.
| MORE HEADROOM > The petroleum ministry, in an order dated May 31, made a distinction between existing producing fields and new ones in nomination blocks > The price of APM gas has been more than doubled to $4.2 per mBtu, on a par with the rate at which RIL sells gas from its KG-D6 fields > In a significant departure from the old practice, the government has now decided to price natural gas in US dollars |
The increase in power tariffs would be marginal as only 11 per cent of the total electricity generated in the country comes from gas-based power projects. And, of these, only one-third use the gas with the increased price tag.
ONGC and OIL would gain about Rs 5,000 crore and Rs 700 crore in revenue, respectively, due to the gas price increase.
GAIL India, which has been allowed to charge Rs 200 per thousand cubic metres, or 11.2 cents per mBtu, as marketing margin, would gain Rs 150-200 crore in revenues annually.
State-run ONGC and OIL produce 54.32 million cubic metres of gas per day — about 40 per cent of the total amount originating from the country — through fields given to them on a nomination basis.