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JUN 21 2014

Government looks at ways to resolve gas pricing issue

  • Economic Times, ET Bureau / Hyderabad
  • Created: Sat 21st JUN 2014

Centre may tweak Rangarajan formula or allow higher prices for 2013-14 excess output.

The government is keeping all options open on the contentious issue of natural gas prices, ranging from tweaking the Rangarajan formula, that will double rates to about $8.4 per unit, changing the international benchmarks used to calculate the price and setting up a new panel to make recommendations, official sources said.

Another possibility, proposed two weeks ago, is to allow higher prices only on output that is in excess of what was produced in 2013-14; or to allow higher gas prices only for production from fields discovered under the New Exploration Licensing Policy. These include fields in the Reliance Industries-operated KG-D6 block, but will exclude many fields of state-run ONGC . One official said the government may exclude LNG prices in Japan and include Russia in the formula used to calculate natural gas prices in India.

While many options are being considered for the pricing formula, the ministry is of the view that gas should be priced on the basis of the net calorific value, which is the actual heat recovered after combustion, not the gross calorific value which is about 10% higher. The international benchmarks are usually based on the gross value, but pricing in India has been traditionally on the basis of net value. The Rangarajan formula is silent on this aspect, leading to differences between producers of natural gas and the ministry.

The draft cabinet note will be put up to oil minister Dharmendra Pradhan, who returned to India on Thursday from Russia, officials said.

Natural gas pricing is a contentious issue that pits consumers in the power and fertiliser sector against producers. The Rangarajan formula has been challenged in the Supreme Court, which is hearing public interest litigations on gas pricing and the ministry.

The draft cabinet note will be put up to oil minister Dharmendra Pradhan, who returned to India on Thursday from Russia, officials said.

Natural gas pricing is a contentious issue that pits consumers in the power and fertiliser sector cers. The Rangara against producers. The Rangarajan formula has been challenged in the Supreme Court, which is hearing public interest litigations on gas pricing.

Gas producers say there are many proven discoveries that are unviable at current rates but will be able to replace costly liquefied natural gas imports if higher prices are allowed. LNG cost about double the rate that is calculated with the Rangarajan formula. The government had approved the formula that would have come into effect from April 1 this year, but the Election Commission blocked it.

BP, RIL's partner, has also pressed the government for higher prices.

BP's CEO Bob Dudley said this week that his company's experience in India was "disappointing".

The exploration industry has highlighted the fact that the country is ready to import LNG at very high prices but not allowing domestic fields to become viable.

Tags

Gas ONGC Reliance Industries limited Russia Indus Liquefied natural gas Japan India

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