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Gas producers marketing their output directly to domestic power plants may no longer have the option of choosing the buyer in the near future.
The Government is considering a proposal for allocation of all domestic gas, besides imported gas (R-LNG) intended for supply to power producers, to public sector GAIL (India) for the purpose of price pooling.
It has already received a green signal on the proposal from the Department of Legal Affairs. The Department has opined that “since the proposal for gas price pooling through GAIL is a matter of policy, for the best utilisation of the natural resources vested in the Union Government and for ensuring uniformity with regard to canalising the natural gas produced under different Production Sharing Contracts, there appears to be no legal objection.”
However, there are a few stumbling blocks in the way of the proposal, one of them being treatment of domestic gas being sold under Administered Pricing Mechanism (APM) from fields awarded to ONGC and Oil India on nomination basis. This gas, at administered price, is significantly cheaper than the imported gas. It is mainly sold to the power and fertiliser sectors, but also supplied to small-scale industries and units.
In addition, allocation of the entire quantum of gas from Reliance Industries Ltd's KG-D6 field to GAIL may be problematic: the production sharing contract states that such assignment can only be done to an affiliate. In case this is to be pursued, the Empowered Group of Ministers might have to come into the picture and issue a suitable directive.
Establishing such a pricing mechanism will necessitate the creation of a gas pool account with GAIL for monthly accounting and weighted average price communication to all producers. It is still to be worked out whether this can be done within the existing gas purchase agreements or new pacts will have to be signed.
Furthermore, the gas sale agreements (GSA) inked between GAIL and power producers, besides the distribution major's gas transportation agreement for KG-D6 gas will have to be amended to reflect the new pooled pricing. The plan is to allow GAIL to levy a marketing margin on the gas allocated to it for its services.
It may be some more time before the modalities of the proposal are ironed out.
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