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Since there are various regimes applicable to gas pricing in the country, a committee under C Rangarajan, then chairman of the Prime Minister's Economic Advisory Council, had favoured a uniform price. It had argued that the basic difficulty in valuation for determining the government's share was that there was no single gas price.
The panel he chaired had proposed a formula that would have doubled the price of domestic gas to a single rate of $8.4 for every million British thermal units (mBtu), to apply equally to all sectors regardless of their prioritisation for supply under the Gas Utilisation Policy.
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The new government had decided to put the implementation of this recommendation on hold till September 30, pending a more detailed examination. However, petroleum minister Dharmendra Pradhan has denied any move to set up another committee for reviewing the Rangarajan guidelines. "These are mere speculations," he'd told Business Standard.
India's domestic natural gas production is divided in three broad categories: APM (administered price mechanism) and non-APM gas from nominated fields of national oil Companies; pre-Nelp (New Exploration Licensing Policy) gas; and Nelp gas. These different categories are being allocated under diverse gas utilisation policies and at different prices.
India consumed 121 million standard cubic metres a day (mscmd) of natural gas in 2013-14. That comprised 48 mscmd of APM gas (at $4.2 a mBtu), 7.5 mscmd of non-APM gas from nomination fields (at $4.2-5.2 an mBtu), 13.5 mscmd of Nelp gas (at $4.2 an mBtu), 10 mscmd of pre-Nelp gas (at $3.5-5.7 an mBtu), 41 mscmd of R-LNG (regasified liquefied natural gas, at $12.9-17.4 an mBtu) and 0.3 mscmd of CBM (coal bed methane) gas (at $5.1-6.7 an mBtu).
Some experts say it might be feasible but not sensible to have a uniform gas price. "Gas prices have to be attractive enough for supporting long-term exploration activities. Also, the cost of production varies widely between on-shore and off-shore areas," R S Sharma, former Oil & Natural Gas Corporation chairman, told Business Standard.
He said another argument against the move is that there is demand for gas priced at a high rate of $15 an mBtu. "Even city gas distribution is viable at this price. Buyers are willing to pay. So, why not have differential pricing?" he asked.
However, many experts also do share Rangarajan's views on the benefits of uniform pricing. "Any non-uniform pricing becomes discretionary, both in deciding the prices and allocation of the output," said Debasish Mishra, senior director at consultancy firm Deloitte. "Rather than debating whether gas pricing should be uniform or non-uniform, we should debate how soon we should move to market-determined pricing." Only the latter, he said, would be able to attract fresh investment in domestic exploration and production.
The earlier government had on January 10 notified a new domestic gas pricing regime based on Rangarajan's formula. However, general elections were announced before the new price could be formally announced. The Election Commission asked it to leave the decision to the new government and revision of rates was put off to July 1. The new government decided on June 25 to defer a decision until October, pending wider consultation.
Reliance Industries (RIL), operator of the eastern off-shore KG-D6 block, and its partners, BP of the UK and Niko Resources of Canada, had on May 9 served a pre-arbitration notice on the government, alleging the failure to implement the earlier decision on a gas price rise effective April 1 was preventing the sanctioning of investments of around $4 billion.
This was followed by a formal Notice of Arbitration, served on June 17 by RIL-BP-Niko, naming London-based David Steel as their arbitrator. A month later, on July 17, the government appointed former Supreme Court judge G S Singhvi as arbitrator on its behalf, formally joining the process.
