The best thing about the renegotiated liquefied natural gas (LNG) supply deal with RasGas of Qatar is that it brings down the benchmark rate for natural gas in the country to more realistic levels. There are two major components to the new deal that has been signed between RasGas and Petronet LNG. First, the LNG price will be linked to a three-month average of Brent crude oil prices, replacing the earlier formula based on five-year average of a basket of crude imported by Japan. It is this change that has been primarily responsible for the sharp fall in the import price. Second, RasGas has agreed to waive a ₹12,000 crore penalty payable by Petronet for not taking up the contracted supplies in 2015. The shortfall will be made up by Petronet through higher volumes of purchase over the remaining term of the contract that runs until 2028. As a sweetener for the whole deal, the total quantum of LNG that Petronet will buy from RasGas has been bumped up by a million tonnes to 8.5 MT per annum through the term of the contract.
While the Centre deserves credit for renegotiating the contract, it should proceed to afffix accountability for what was fundamentally a bad deal. The original agreement between RasGas and Petronet was a 25-year fixed price contract linked to crude oil prices, with a floor price of $3 and a cap of $4 per million metric British thermal unit (MMBTU). Why were the pricing terms changed to the country’s detriment when the deal was renegotiated in 1999 for higher volumes of LNG? Why did Petronet agree in 2006 to buy ‘lean’ gas or gas with a lower component of hydrocarbons such as ethane, propane and butane, for a volume of 2.5 million tonnes of the overall contracted quantum of 7.5 million tonnes? These, and related issues, were investigated by a government committee in early 2015 and the Petroleum Minister is on record in Parliament that its findings, arrived with the help of the Central Vigilance Commission, were under examination. Of course, an impediment for further action is the fact that since less than half of Petronet’s equity is held by PSUs, it remains strictly outside the purview of the CVC and the Comptroller and Auditor General.
The $14-18 per MMBTU price of imported LNG was cited by Indian gas producers as proof that domestic gas was priced artificially low as per the formula fixed by the Centre. That argument has been weakened with the renegotiated price of $6-7 per MMBTU being very close to the domestic price of $4.24 per MMBTU. Consumers such as power plants and fertiliser units which had shunned LNG following the price spiral may once again find the fuel viable for use. Eventually, gas pricing in India should be linked to the market rather than to artificial formulae with their inherent biases. That would be true reform.