New Delhi: The Oil Ministry may take the Rangarajan panel recommendation of mandating a price of about $8-8.5 for natural gas, produced by companies like Reliance Industries, to CCEA or EGoM for approval.
The Committee had suggested pricing of domestically produced natural gas at an average of international hub prices and cost of imported LNG instead of present mechanism of market discovery. Since the panel was appointed by the Prime Minister, the ministry feels its suggestions should be considered by either the Cabinet Committee on Economic Affairs or the Empowered Group of Ministers on natural gas, sources said.
The panel had suggested taking a weighted average of the US, Europe and Japanese gas hubs or market price and then averaging it with the net imported price of liquefied natural gas (LNG) to give sale price of domestically produced gas.
Taking last year’s publicly available consumption numbers and the prevailing price of gas in the three markets, the formula suggested by the Rangarajan committee gives $ 8-8.5 per million British thermal unit as the price of domestic gas.
This is more than $4.2-5.73 per mmBtu price currently prevalent in the country. Industry sources said acceptance of the recommendations would lead to overriding of provisions in contracts signed by companies like RIL. Currently, Production Sharing Contracts (PSC) provide for gas being sold at an arms-length price discovered through market bids invited from potential users.
Acceptance of the recommendation would mean government mandating a price of gas and ending the last of the remaining freedoms available, the sources said. The government has already taken over the task of fixing users curbing marketing freedom guaranteed in PSC.
Some stakeholders have also questioned as to how a price of gas-surplus US or Europe could be applied to a hugely fuel deficit nation like India. The panel headed by C Rangarajan—Chairman, Economic Advisory Council to the Prime Minister —also suggested sweeping change in future exploration contracts. The existing PSC allows a company to recover its cost, before giving the government a share in revenue earned from sale of oil and gas.
Stating that cost recovery is at the root of the problems being experienced currently, the panel proposed to dispense with it in favour of sharing of the overall revenues of the contractor, without setting off any costs.
The committee has also recommended that an extended tax holiday of 10 years, as against 7 years already available for all blocks, be granted for blocks having a substantial portion involving drilling offshore at a depth of more than 1,500 metres, since cost of a single well can be as high as $150 million.