Proposed gas price hike rational: R S Sharma

In a Q&A with former CMD of ONGC, Sharma tells Sanjay Jog that "consumers should be told to be ready to pay higher prices"

ONGC's former CMD RS Sharma during his tenure and ever after his retirement has been quite vocal on the revision in gas price in a transparent manner. In an interview with Sanjay Jog, Sharma, who is currently Lloyd's Register chairman of its Southwest Asian operations, explains how the proposed gas hike was necessary to tackle the energy crisis.

How do you see the timing of the government's decision to approve gas price  hike?
It is said to be better late than never. I feel the country could not have afforded to delay this decision any more. My very sincere compliments to the Minister of Petroleum Veerappa Moily. The Energy Security issue for the economy has gone into total mess. 

India needs to send a clear signal to global players that the regime here is conducive to support investments in the high risk exploration business. Unless we provide adequate incentive, investments will not flow in. As of now, even Indian entities get better commercial sense to invest for gas or shale gas in other countries, including PSUs like GAIL, OIL, and ONGC. In the process we are supporting investments and employment in other economies, and import more and more oil and gas, thus further straining our limited forex reserves, putting more pressure on CAD and exchange rate. 

I have been quite vocal about these thoughts, and have been consistently saying that we are heading towards a major energy crisis. Unfortunately, we are now actually experiencing it. We are increasingly becoming more dependent on imports of oil, gas, as well as coal at much higher prices than low prices for domestic production. As a result, reserves in our own backyard remain unexploited. Domestic production in the short run as well as in the long run will definitely go up with more remunerative prices. 

Considering the volatility in global gas market is the proposed rise adequate?

The proposed rise is quite rational. Rangarajan Committee had high profile economists and industry veterans. They had gone through a detailed process of obtaining views of all stake holders. Hence their recommendations had lot of sanctity. It is quite logical to recognise and accept those recommendations. In fact global entities like BP have gone on record and written letters to the Government that gas price as per Rangarajan Committee recommendations are not adequate.
 

I personally feel that acceptance of gas price recommendations of Rangarajan Committee is quite appropriate under the prevailing situation of intense political and consumer lobby against any price rise.

Industry players and experts believe that gas price rise will be a big incentive for upstream companies in particular as they feel it will boost E&P activities. What is your take?
I entirely endorse the views that this price increase will incentivise E & P activities in India. 

However, will increased subsidy burden by GoI negate some benefits for PSU companies? This is because the subsidy sharing burden for upstream companies would remain elevated in FY14 and FY15. 

My personal views are that PSU entities will not be able to retain the benefits of price increase, and would be asked to share higher amount of subsidy. They may even be asked to offer discounts on sale of gas, as being done for sale of oil. Since they do not have to share production with GOI in the nominated blocks, as in case of PSC regime, GOI would be within its rights to ask for such discounts. 

Do you propose that the time is opportune to bring changes in the long and complex approval processes in the upstream sector as the meaningful gas production will take few years?
Approval process definitely needs to be compressed. 

Will power and fertilizer sectors, which are expected to hit hard, in a position to bear the gas hike especially when the petroleum ministry has passed the buck on finance ministry on providing subsidies to states?
A more intensive awareness campaign has to be launched to tell the consumers in all segments that they have to prepare for paying higher prices for domestic production also in times to come. 

Political parties and critics have alleged that the gas price rise is done under the pressure from RIL. Is it meant for a particular corporte house?
What political parties say is nothing but a political propaganda only. No truth in alleging any favour to any entity. 

What you have to say on finance minister's statement that rise in gas price was due to falling output?
I agree with views of FM. Increase in domestic prices will make domestic production to go up.many discovered fields like ONGC's KG 98/2 will become commercially viable to come on production stream.