Oil ministry starts process for revision of gas prices from 2014

NEW DELHI: The oil ministry has started the process of revising domestic gas prices after March 2014 from various fields in a move that will help companies such as Reliance Industries develop new fields and more than double the output from the KG-D6 block.

The oil ministry is preparing a note on the issue, which is expected to be discussed by Rangarajan committee, which is reviewing production-sharing contracts and pricing-related issues. The panel's next meeting is scheduled on Wednesday.

Reliance Industries' has submitted a pricing formula to discover market-determined price for its D6 gas that will be produced after March 2014, which is being examined, government officials with direct knowledge of the matter said. An empowered group of ministers (EGoM) had fixed D6 gas price at $4.20 per unit for five years ending March 2014.

RIL and its British partner BP have also been trying to revise the current gas price, saying that the rate is artificially depressed but that would be separately considered by the EGoM, government officials said.

Reliance is apprehensive that the government may fix gas price in a manner which may not be consistent with its contract. "We respectfully submit that any effort to regulate gas prices to lower levels would be contrary to the provisions of the PSC (production sharing contract), the provisions of Nelp as notified in 1999 in the gazette by the government, and the notice inviting offers through various Nelp rounds, which were widely promoted amongst global investors," RIL said in a recent letter to the oil ministry.


The oil ministry and RIL did not respond to ET's queries. It said an early decision of future gas price was needed to achieve financial closure for further development works at the D6 block.

Development of new fields in the D6 block could produce an additional 30 to 35 million standard cubic meters per day of gas, the company said in another letter to the ministry. The block's current output is about 29 mmscmd.

Exploration companies including Reliance and its partner BP have already made presentations before the committee advocating pricing freedom. "Sub-market pricing encourages inefficient consumption and shift of exploration and production investment outside India," the Association of Oil & Gas Operators told the panel in its presentation.

Former ONGC chairman RS Sharma, who represented Ficci, told the panel "price discovery process should be independent of government's policy for allocation and utilization of natural gas."

CII urged the panel to "reinstate the original PSC provisions for financial terms and incentives including the freedom to price and market gas at a market linked price, as is done in the case of oil." The panel is expected to submit its report in a month.