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The finance ministry has advised its petroleum counterpart to consider imposing a cap on gas price under all contracts governing production sharing from fields, as part of its comment on the issue of pricing of shortfall gas from Reliance Industries operated KG-D6 block.
The ministry’s advice is detailed in its November 26 communication to the oil ministry, made public by CPI MP Gurudas Dasgupta today, in support of deferment of a decision on pricing of KG-D6 gas.
“A ceiling on the gas price is necessary to protect the interests of the government in case of an unreasonable upswing in the (crude) prices. As similar provisions related to pricing mechanism are there in the model PSC for latest rounds of NELP bidding, it follows that the ceiling can easily be applied in respect of all such contracts,” the finance ministry said.
The ministry has suggested excluding the weightage given to spot LNG contracts from PSCs in order to reduce price volatility. The oil ministry had in August sought the finance ministry’s comments on a draft note for the Cabinet Committee on Economic Affairs (CCEA) on pricing of gas from the D1 and D3 blocks of the KG basin off Andhra coast.
The finance ministry has asked placing before the cabinet similar details for other fields including the production targets, with its financial implication, in MA field and exploration and development expenditure required for fields where the existing price of $4.2 per mmbtu is considered unviable. This includes the D2, D6, D19 and D22 fields in the basin.
Building a case for deferring a decision on pricing of shortfall gas, the finance ministry has emphasized that, in respect of D1 and D3 discoveries, there is nothing on record to suggest the contractor made efforts to arrest falling production as advised by agencies. “The finance ministry’s communication completely upholds my case,” Dasgupta told reporters today.
Dasgupta has written to Prime Minister Manmohan Singh urging that the finance ministry’s advice for deferment of pricing of shortfall of gas be accepted. The finance ministry has said article 30.3 of the PSC provides for termination of contract in case the contractor has failed to comply with its provisions.
