Announcing grand reform measures, only to follow them up with riders virtually nullifying what was initially projected, has become the hallmark of the Government at the Centre. Such insertion of new caveats was seen in the case of decisions to open up retail and civil aviation sectors to foreign players. The same ‘conditions-apply’ approach is now manifesting in the approval, given only late last month, for raising prices of all domestically-produced gas closer to import parity levels with effect from April 2014. Barely within a week of the Cabinet’s go-ahead, the Finance Ministry has moved a proposal to deny the “benefit” of the new pricing regime for gas produced from Reliance Industries’ KG-D6 fields. The company, according to the Ministry, is currently producing not even a fifth of what it was supposed to in the original field development plan. The Government should, hence, ensure that Reliance is paid the new gas prices only after delivering the entire production shortfall it still “owes” at the existing lower $4.2/mmbtu rate.

The Finance Ministry's logic assumes that Reliance Industries has been deliberately reducing gas output from its fields to make a killing from the higher prices the following year. Does it have any concrete proof of the company ‘hoarding' gas? If production from the KG-D6 fields is, indeed, falling for reasons other than Reliance's claims of “reservoir complexities”, can it offer irrefutable evidence for that, based on reports by the Directorate General of Hydrocarbons and other expert bodies? In the absence of such technical validation, it is clearly not possible for the Government to exclude Reliance from the ambit of the proposed new gas pricing mechanism. The Finance Ministry’s latest initiative appears to be aimed more at fending off critics, who have been projecting the move to a semblance of market-based pricing as a ‘favour’ extended to Reliance Industries.

The truth is that the only ones being ‘favoured’ by the Government’s existing policy — to pay domestic producers a price not even half of the landed cost for imports — are the suppliers of liquefied natural gas (LNG) based in Qatar or Australia. Roughly a third of gas availability in India is already now being met from imported LNG. With demand from power plants, fertiliser makers and other consumers growing by double-digits every year, this share will only go up. It is for the country, then, to make a choice between importing more or augmenting domestic exploration and production activity. The latter will not happen unless investors are, at the least, assured of a market-determined price for the gas from the fields explored and developed by them. There is no ‘favour’ or ‘benefit’ that is being bestowed here. And incidentally, the new policy benefits state-owned oil companies as much as Reliance, especially with the former accounting for more than half of India's gas output.

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