With the rupee touching a 30-month low against the US dollar, the state-owned Oil and Natural Gas Corp (ONGC) will get a windfall of over Rs 1,300 crore from the domestically produced natural gas, which is priced in dollar.
The windfall is courtesy the Oil Ministry, which changed the pricing of domestically produced natural gas from rupee to the US dollar last year, industry sources said.
In May last year, the ministry had decided that gas produced by ONGC and Oil India should be priced in US dollars when rates were revised to $3.818 per million British thermal units ($4.2 per mmBtu after including royalty) from Rs 3,200 per thousand cubic metres (equivalent to $1.79 per mmBtu).
However, with rupee dropping below Rs 50 per dollar from less than Rs 45 three months back, fertiliser firms and power producers have to shell out Rs 3.5 crore more every day.
From 52 million cubic metres per day of gas production, ONGC will gain Rs 1,304 crore on an annualised basis at the higher exchange rate.
Sources said the windfall that ONGC is getting is actually being borne by consumers who have to shell out more in electricity rates and fertiliser costs.
This situation as well as a scenario where the rupee hardening hurts ONGC’s revenue, could have been avoided if domestic gas was priced at the equivalent of $3.818 per mmBtu in rupees, as had been the past practice.
Reliance Industries (RIL), the nation’s second-biggest gas producer, stands to gain Rs 1,240 crore on production of 45 mmcmd of gas from its eastern offshore KG-D6 fields in a year due to weakening of the rupee.
While KG-D6 gas could not have been priced in rupees, as the contract for the field explicitly provides for pricing of the fuel in US dollars, the additional burden on power and fertiliser firms could have been avoided if the proposal from RIL of having a fixed rupee-dollar ratio had been accepted.
RIL, sources said, had in 2007 proposed that the exchange rate could be fixed at Rs 45 to a US dollar while deciding on KG-D6 price. The rupee was trading at around 43 to a dollar at that time and so it was rejected.
It was stated that prevailing exchange rates would be used for the purpose of conversion of the $4.2 per mmBtu price fixed for KG-D6 gas into rupees.
Incidentally, by the time RIL began gas production in April 2009, the rupee had weakened to Rs 45 per dollar.
Sources said that besides the gas price, the $0.11 per mmBtu marketing margin charged by state-owned GAIL India for the effort it makes in selling gas produced by ONGC, too, is US dollar-linked.