Moily clarifies on gas price hike: All you need to know

New Delhi: Amidst Finance Ministry raising prospects of forcing Reliance Industries to sell gas at old price of $4.2, Oil Minister M Veerapa Moily today said there was no rethinking in the government on the decision to double gas rates from April 1, 2014.

“There is no thinking on part of the government for any review or reconsideration of the decision of the CCEA. Let me make it very clear. There is no confusion, there is no vagueness. And I don’t think there is scope for any interpretation whatsoever,” he told a news conference here.

Finance Ministry on July 4 wrote to Oil Ministry asking it to take appropriate action on suggestions made in two media reports for putting a cap upto which rates can be raised and RIL being forced to the quantity it had committed but failed to deliver in past three years at old rate of $4.2.

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“The Office Memorandum dated July 4 from the Department of Expenditure, Ministry of Finance… has enclosed two editorials of the newspapers and illustrated some of the issues in these editorials. That cannot be taken as objective opinion of Ministry of Finance. It cannot (also) be considered as query raised by Ministry of Finance,” Moily said.

The Cabinet Committee on Economic Affairs (CCEA) had on June 27 approved pricing of domestic gas at an average of cost of imported LNG into India and international hub rates. The price of gas when this formula comes into effect on April 1 could come to about USD 8.4 per million British thermal unit.

Moily said his ministry had taken opinion of Finance Ministry twice and it was incorporated in the CCEA note. Finance Ministry in comments did not raise any issue of capping price or RIL being asked to sell gas at old rate.

“I dont think there is another interpretation open to it. It (the CCEA decision) has been done after due deliberation and I think it has taken lot of time and deliberations and once considered view has been taken, we will stick to that,” Moily said.

Ruling out capping increase in rates, the Minister said, “The CCEA decision stands. There is no change. And government, not just Ministry of Petroleum and Natural Gas, is not contemplating any changes in it.”

Asked if RIL may be asked to sell some part of its KG-D6 gas at old rate of USD 4.2 per mmBtu, Moily said the CCEA decision will “apply on all natural gas produced domestically and all the consuming sectors uniformly.”

The Ministry of Finance in its July 4 had note asked if RIL, which will be a big beneficiary of rates increase, be made to sell the quantity it has failed to deliver as per its own targets during past 3 years at current price of USD 4.2.

“Once Reliance overcomes the ’technical difficulty’ of producing gas at the KG-D6 field, the government must ensure the company delivers the shortfall it still owes at the old price of $4.2 rather than getting the benefit of the new price,” it wrote.

But for first year of production, KG-D6 production was short of target since 2010-11 fiscal. Against the target of 62.1 million standard cubic metres per day in 2010-11, RIL produced 55.89 mmscmd. In the following year, it produced 42.65 mmscmd as opposed to a target of 70.38 mmscmd.

Last fiscal, gas production of 27 mmscmd was way short of target of 86.73 mmscmd. Currently, it is producing 14.01 mmscmd as opposed to a target of over 86 mmscmd.

A senior Finance Ministry official said the Department of Expenditure had forwarded concerns raised by stakeholders to the oil ministry as suggestions.

“The CCEA approved domestic natural gas pricing guidelines 2013 based on the methodology suggested by Dr

Rangarajan Committee which will be applicable to all natural gas produced domestically and to all the consuming sectors uniformly,” Moily said.

The gas price, as per the CCEA approval, is to change every quarter and there were concerns that leaving the formula open-ended may result in prices rising to USD 10-12 in the near future.

The new pricing formula will be effective for five years.

The price for each quarter will be calculated based on the 12-month trailing average price with a lag of one quarter (i.e. price for April to June 2014 will be calculated based on the averages for the 12 months ended December 31, 2013).

PTI