Benefits from any increase in domestically produced natural gas price may still elude Reliance Industries Ltd (RIL), as it may have to sell its unmet supplies due to drop in output, at the current lower rate.
On July 4, the Finance Ministry is understood to have written to the Petroleum & Natural Gas Ministry pointing out that RIL, which will benefit from the higher gas prices, should be asked to do so once it is able to increase production from its East Coast gas fields.
At present, RIL gas is sold at $4.2 for every unit of gas sold. (Gas is measured in million British thermal unit.)
The Finance Ministry has said, “Once Reliance overcomes the ‘technical difficulty’ of producing gas at the KG-D6 field, the Government must ensure the company delivers the shortfall it still owes at the old price of $4.2 rather than getting the benefit of the new price”.
The company was supposed to produce 80 mmscmd but it is producing now 14 mmscmd.
This move of the Finance Ministry is said to be based on media reports on the Cabinet Committee on Economic Affairs’ decision that approved revision of domestically produced natural gas price based on the formula proposed by the Rangarajan Panel.
The new regime will be effective April 2014, and if the current trend continues it would lead to almost doubling of gas prices. The new price is proposed to be fixed for five years.
Besides, the Finance Ministry has also asked the Petroleum & Natural Gas Ministry that the ongoing issues with Reliance Industries – of cost recovery and penalties for not meeting the contracted output levels – need to be taken to their logical conclusion.
Incidentally, the Finance Ministry has been one of the key ministries pitching for higher prices for domestically produced natural gas.
The Finance Ministry has also asked the Petroleum & Natural Gas Ministry to examine and take appropriate action on the suggestion for putting a cap to which rates can be raised.
“There must be a ceiling price under the formula. It cannot be that the producers will reap unlimited gains in case of an upswing in global prices, any upside has to be capped,” as suggested by some stakeholders, the letter noted.
As regards impact on the power companies, the letter says that if the impact is shared across all 900 billion units of power generated, the required tariff hike of 7-8 paise a unit will be easily absorbed.
The Finance Ministry has also asked the Oil Ministry to consider other recommendations of the Rangarajan Panel.
The panel was set up to examine and suggest changes in the production sharing contracts in the petroleum sector including gas pricing.