The Centre may end up endorsing dual pricing for the gas being produced from Reliance Industries-operated KG-D6 block, if the current views of the Petroleum and Natural Gas Ministry and the Finance Ministry find their way to the Cabinet Committee on Economic Affairs.
Both are of the view that revising the price of gas from the existing producing fields (D-1 and D-3) in the D6 block should be deferred until reasons for decline in output are known. But new discoveries in the block can be sold at the new price to be applicable from April 2014.
This, according to critics, would go against the recently-announced Gas Pricing Guidelines of the Centre, which promote uniform pricing from all gas sources.
Issues of concern
It also raises a debate on whether it is possible under the production-sharing contract to force a contractor to sell the unmet commitments at a lower price.
Another issue that would emerge will be the willingness of the buyers to source gas from the same block at a higher price, while the existing customers will get at cheaper rates.
For the new discoveries in the block, the Finance Ministry feels that the Petroleum and Natural Gas Ministry should present details of production target, financial impact, expenditure involved in production, as well as the gas reserves. This is because the contractor and the Petroleum Ministry were of the view that new discoveries were not viable at the current price.
At present, gas from D-1 and D-3 fields is being sold at $4.2/unit (gas is measured in million British thermal units) at the landfall point. To this price marketing margin, transmission tariff and other local taxes are added.
The new pricing guidelines are to be applicable to all natural gas produced domestically and to all consuming sectors from April 2014. The new price is to be applicable for five years after which the market price could be adopted. The underlying principle is that the Indian producer should get a price similar to what producers elsewhere are getting.
Though Moily has assured that any decision taken would be in the best interest of all the stakeholders — the Government and contractors — the boards of the two companies will take investment decisions only when a clear picture emerges.
In its comments on the CCEA note on pricing of natural gas that has fallen short of the commitments made in the field development plan of D-1, D-3 discoveries, the Finance Ministry said that a ceiling on the price is necessary.
This is to protect the interests of consumers and the Government, in case of an unreasonable upswing in the prices.