Rangarajan may’ve last word on gas price
The EGoM, set up to fix gas pricing formula, may call upon Prime Minister’s Economic Advisory Council chairman C Rangarajan to explain the fine print of RIL’s pricing formula before a final decision is taken.
By Rajeev Jayaswal, TNN |
NEW DELHI: The Empowered Group of Ministers (EGoM), set up to fix gas pricing formula, may call upon Prime Minister’s Economic Advisory Council (EAC) chairman C Rangarajan to explain the fine print of RIL’s pricing formula before a final decision is taken. Although there is a broad consensus for approving the RIL gas formula, Mr Rangarajan is expected to help the members understand the nuances of the pricing issue. The EGoM is set to meet on Thursday and a decision on the issue may be on the cards.
There has been a broad agreement amongst EGoM members over the EAC’s report which found it “as per international practices”. Finance minister P Chidambaram had suggested that EAC could be invited in the next meeting to explain the formula as members of EGoM are not technical experts. Sources close to the development said minor changes in the formula, particularly relating to dollar rupee terms, could be introduced.
Taking EAC’s advice on the pricing formula was first raised by some members in the EGoM meeting held on August 27. Subsequently, it has been accepted by many other members, a source said. Members of EGoM are finance minister P Chidambaram, petroleum minister Murli Deora, power minister Sushilkumar Shinde, fertiliser minister Ram Vilas Paswan, law minister HR Bhardwaj, planning commission deputy chairman Montek Singh Ahluwalia and corporate affairs minister Prem Chand Gupta.
Sources said EGoM is in favour of adopting a focused approach on issues of commercial utilisation and pricing of gas in the light of New Exploration & Licensing Policy (Nelp). It has been discussed that the production sharing contract (PSC) signed between the government and the contractor (RIL-Niko in this case) under Nelp provides marketing freedom to the contractor and the government’s role is confined only to approving the pricing formula for valuation of its share (profit petroleum/gas).
Sources said the petroleum ministry was of view that any attempt to change in RIL’s KG basin gas price might have some legal implications. It was also suggested that EGoM might take the opinion of the attorney general in this regard. Reliance, in its presentation to the committee of secretary (CoS), had specified that any attempt by the government to regulate gas price could have legal implications.
“Under Article 21.3 of Production Sharing Contract (signed between the government and contractor), the consortium of RIL and NIKO has the freedom to market the gas,” said a source. “Under Article 21.6 of PSC, the gas is to be marketed at market determined price. The government does not fix the gas price.” However, the source added that the same article also empowers government “to ensure that the companies do not sell gas at other than arms length price.”
A similar view was concluded after a series of deliberations undertaken by CoS, chaired by Cabinet secretary KM Chandrasekhar. Pointing at instances of re-negotiation of PSCs in Russia, Venezuela and Ecuador, a CoS report said: “It is, however, felt that it would not be in the country’s interests to renege from a contract entered into by another party in good faith. Any such move would lead to loss of creditability in the country’s assurances to potential investors in different sectors and would ultimately affect medium and long-term investments.”
There has been a broad agreement amongst EGoM members over the EAC’s report which found it “as per international practices”. Finance minister P Chidambaram had suggested that EAC could be invited in the next meeting to explain the formula as members of EGoM are not technical experts. Sources close to the development said minor changes in the formula, particularly relating to dollar rupee terms, could be introduced.
Taking EAC’s advice on the pricing formula was first raised by some members in the EGoM meeting held on August 27. Subsequently, it has been accepted by many other members, a source said. Members of EGoM are finance minister P Chidambaram, petroleum minister Murli Deora, power minister Sushilkumar Shinde, fertiliser minister Ram Vilas Paswan, law minister HR Bhardwaj, planning commission deputy chairman Montek Singh Ahluwalia and corporate affairs minister Prem Chand Gupta.
Sources said EGoM is in favour of adopting a focused approach on issues of commercial utilisation and pricing of gas in the light of New Exploration & Licensing Policy (Nelp). It has been discussed that the production sharing contract (PSC) signed between the government and the contractor (RIL-Niko in this case) under Nelp provides marketing freedom to the contractor and the government’s role is confined only to approving the pricing formula for valuation of its share (profit petroleum/gas).
Sources said the petroleum ministry was of view that any attempt to change in RIL’s KG basin gas price might have some legal implications. It was also suggested that EGoM might take the opinion of the attorney general in this regard. Reliance, in its presentation to the committee of secretary (CoS), had specified that any attempt by the government to regulate gas price could have legal implications.
“Under Article 21.3 of Production Sharing Contract (signed between the government and contractor), the consortium of RIL and NIKO has the freedom to market the gas,” said a source. “Under Article 21.6 of PSC, the gas is to be marketed at market determined price. The government does not fix the gas price.” However, the source added that the same article also empowers government “to ensure that the companies do not sell gas at other than arms length price.”
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A similar view was concluded after a series of deliberations undertaken by CoS, chaired by Cabinet secretary KM Chandrasekhar. Pointing at instances of re-negotiation of PSCs in Russia, Venezuela and Ecuador, a CoS report said: “It is, however, felt that it would not be in the country’s interests to renege from a contract entered into by another party in good faith. Any such move would lead to loss of creditability in the country’s assurances to potential investors in different sectors and would ultimately affect medium and long-term investments.”
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