Millennium Post

Centre ‘examining EC order to defer gas price doubling’

‘We are examining it. And because the matter is also in the Supreme Court of India, we would like our Solicitor General or Attorney General to examine it. I don't want to comment further on the issue,’ he said in Bengaluru on Tuesday.

Deferring the new price regime by a few months will not have a material bearing on 85 per cent of the gas produced in the country. Firms such as ONGC will continue to sell gas at $4.2 per million British thermal units (mmBtu). However, the government will have to decide on the gas produced from Reliance Industries' eastern offshore KG-D6 fields. The firm's sales contracts expire at the end of the month and it was looking at renewing supplies to customers including fertiliser plants at the new rates.

Moily said delaying the rate hike will have implications on the investment climate and on subsidy as production will be hit in the absence of remunerative prices. ‘Unless there is production, there is no gas. If there is no gas, (we will have to) import at more than $15 to 18 (per mmBtu). That means to say — we have to live with that kind of an import and there will be higher prices. That means the subsidy will go up,’ he said.

An Oil Ministry official in New Delhi said a directive could be issued to RIL to sell gas on existing terms to government-identified customers until further orders. ‘The matter is sub judice and so we would like to see what the Supreme Court decides (on the issue),’ he said.

The apex court Tuesday resumed hearing a petition by CPI leader Gurudas Dasgupta and an NGO challenging the proposed rate hike from April 1. ‘Government lawyers have already mentioned about the EC directive in the court. We will now submit to the court on the terms (price) RIL can continue supplying gas beyond March 31. We will wait for what the court says,’ the official said.

In New Delhi, RIL Executive Director PMS Prasad met Oil Secretary Saurabh Chandra, apparently to discuss the post-EC directive scenario. The EC order will directly affect only RIL, which produces less than 15 per cent of domestic gas, as its current sales contracts will have to be extended. RIL is allowed to sell gas from KG-D6 only to customers identified by the government. It supplies 12-13 million standard cubic meters of gas a day to 16 fertiliser units under contracts that expire on March 31.

‘Taking into account all relevant facts, including the fact that the matter is sub-judice in the Hon'ble Supreme Court, the Commission has decided that the proposal may be deferred,’ the EC had written to the Oil Secretary. Moily said the government on January 10 notified the formula for pricing gas from the financial year starting April 1 and only the specific rate had to be declared.

Reliance Ind scrip crashes 2.87%

Shares of gas producers fell on the bourses Tuesday led by Reliance Industries Ltd (RIL), which closed lower by 2.87 per cent after the EC told the government to defer the gas price hike until after the general elections. RIL shares fell 3.53 per cent to an intra-day low of Rs 872.60 on the BSE and the scrip of ONGC declined 4.54 per cent to an intra-day low of Rs 306.60 on the BSE.

At the end of Tuesday's trading session, Reliance Industries was quoted at Rs 878.65, down 2.87 per cent, while ONGC ended at Rs 320.10, down 0.34 per cent. Oil India Ltd (OIL) settled at Rs 471.70, down 2.75 per cent, after touching an intra-day low of Rs 468.60. Barclays said, the impact of the delay in new gas price on Reliance Industries is ‘less significant’ but could cut 6 per cent from ONGC and Oil India's FY15 EPS. ‘Assuming the new government does not scrap the decision altogether (unlikely, in our view) this could defer upside for gas producers by one quarter, cutting FY15E gas realisations by USD 0.9/mmbtu or 10.5 per cent,’ Barclays said in a research note.
Next Story
Share it