Petroleum Ministry is “examining” suggestions that Reliance Industries be asked to sell gas it has failed to deliver at old price of $ 4.2 million British thermal unit, the Lok Sabha was informed.
Within days of Cabinet approving a gas pricing formula that will double rates to $ 8.4 when implemented in April 2014, finance ministry wrote to oil ministry with advising it, “examine for appropriate action” suggestions made in media reports for putting a cap up to which rates can be raised and RIL being forced to the quantity it had committed but failed to deliver in past three years at old rate of $ 4.2.
Minister of State for Petroleum and Natural Gas Panabaaka Lakshmi told Lok Sabha in written reply to a question that the issues mentioned in the July 4 office memorandum of finance ministry “are under examination.”
The written reply in response was to be given on Friday August 16 but since a holiday was declared on that day, the answers were tabled today.
She said the finance ministry asked her ministry to examine if “there must be ceiling under the formula. It cannot be that gas producers will reap unlimited gains in case of an upswing in global prices; any upside has to be capped.”
Also, it wanted “the ongoing issues with Reliance — which will benefit the most from the higher prices now — over cost recovery and penalties for not meeting contracted output levels need to be taken to their logical conclusion.”
“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 old price of $ 4.2 rather than getting the benefit of the new price,” she quoted finance ministry as writing on July 4.
On the impact of the rise in gas prices on cost of power generation, the finance ministry wrote that “if the impact is shared across all 90 billion units of power generated, the required tariff hike of 7-8 paise a unit is easily absorbed,” she said.
The Cabinet Committee on Economic Affairs (CCEA) had on June 27 approved pricing of domestic gas at an average of cost of imported LNG into India and international hub rates. The price of gas when this formula comes into effect on April 1 could come to about $ 8.4 per million British thermal unit.
But for first year of production, KG-D6 production was short of target since 2010-11 fiscal. Against the target of 62.1 million standard cubic metres a day in 2010-11, RIL produced 55.89 mmscmd. In the following year, it produced 42.65 mmscmd as opposed to a target of 70.38 mmscmd.
Last fiscal, gas production of 27 mmscmd was way short of target of 86.73 mmscmd. Currently, it is producing less than 14 mmscmd as opposed to a target of over 86 mmscmd.