The Government of India on 10 January 2014
notified the new natural gas pricing formulae, which will be in effect from 1
April 2014. As per the newly issued notification, the rate of all domestically
produced fuel will be almost doubled to 8.2 to 8.4 dollar per unit.
The notification of the Petroleum and Natural
Gas Ministry said that the prices of the gas will be the average price of
liquid gas imports into India and benchmark global gas rates. This formula will
be in applicable for the next five years from the date of its being into
effect.
The rates will be changed every quarter on
the basis of the 12 month average of global rates and LNG import price. This
formula will be applied to all gas produced by both the public sector firms
like ONGC and the private companies.
These guidelines will be applicable on D1 and
D3 gas discoveries of the block depending upon the submission of bank
guarantees, which will be notified separately. The same rates also will be
uniformly applicable to all the fields of India except the fields where the
prices has been fixed following the contract and also in the marginal small
fields, which requires special dispensation.
The formula was announced during the
Petrotech Conference, where the government interacts with the industry leaders
and markets the next round of the New Exploration Licensing Policy for the
potential investors. Might be possible that the development of the formula will
help in development of the new fields, which were missed out by the companies
that doesn’t know about the revenue can be generated from the gas fields.
The notification of the formula for price
hiking was awaited by the gas and oil industry since 27 June 2013, the date
when the new pricing system got the first nod of the Cabinet following the
recommendations of the Rangrajan Committee.
The notification on the formula was delayed because of the legal fight
between the Union Oil Ministry and Reliance Industries after the concerns was
raised by the Union Finance Ministry. Reliance has been penalized for the fall
in output.
Higher prices against bank guarantees that
could be encashed in the case that the output of gas from D1 and D3 fields of
KG-D6 block was hoarded by the company, which was approved by The Cabinet in
December 2014.
Effects of the formula on prices of other
materials: This formula will lead to raise the subsidy on fertilize and will
enormously raise the costs of the power plants fired with gas. The fertilizer
and power firms lobbying exercise failed to be in effect with the raise of the
domestic gas prices.