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Oil ministry withdraws note against RIL’s gas price hike

The Oil Ministry has withdrawn a note it had circulated to the members of a ministerial commission opposing hike in price of gas produced by Reliance Industries, as the Rangarajan Committee is examining pricing of the fuel.

In a surprise move, the ministry had on 10 October moved a note to the Empowered Group of Ministers (EGoM) opposing a hike in price of RIL’s KG-D6 gas before April 2014 even though the company itself was not seeking a revision before that date.

‘Yes, the note to EGoM has been withdrawn,’ a top ministry official said.

This was done in view of panel headed by Prime Minister’s Economic Advisory Council chairman C Rangarajan being asked to suggest ‘structure and elements of the guidelines for determining the basis or formula for the price of domestically produced gas, and for monitoring actual price fixation.’

Prime Minister had appointed the six-member panel to essentially look at the design of future contracts for exploration of oil and gas. It had also been tasked to suggest pricing of natural gas.

Sources said the ministry had in the 10 October note to EGoM members argued that a higher price of KG-D6 gas would result in USD 6.3 billion rise in subsidy burden.

RIL, it said, would get an additional USD 4.1 billion revenue if the rates are hiked from current USD 4.2 per million British thermal unit to import parity rates of USD 14.2-14.51 per mmBtu. The government on the other hand would get only USD 0.5 billion at current year production level of around 25 million standard cubic metres per day.

Sources said the ministry stated that a USD 10 rise in gas price would result in increase in subsidy paid on fertiliser and power by USD 6.3 billion.

The ministry, however, in the note did not state that RIL had modified its January request for a price revision to clearly state it is seeking rate revision only from 1 April 2014 when the current price is due to expire.

RIL first in June and then again on 6 September reiterated its demand for a price at par with the rate India is paying for import of liquefied natural gas (LNG) from 1 April 2014 when the current five-year period of USD 4.2 price expires.

It wants to price KG-D6 gas at 12.67 per cent of JCC, or Japan Customs-Cleared crude, plus USD 0.26 per mmBtu. At USD 110 per barrel oil price, gas will cost USD 14.23 per mmBtu.

Sources said the company has also proposed to price gas it plans to produce from coal seams, called coal-bed methane (CBM), from Sohagpur blocks in Madhya Pradesh according to the same formula.

Its CBM pricing formula as well as Essar Oil’s demand for USD 4.2 per mmBtu price of CBM from its Raniganj block in West Bengal had been referred Rangarajan for review.

The EGoM had in 2007 fixed USD 4.2 per mmBtu price of KG-D6 gas for first five years of production. RIL began KG-D6 gas production in April 2009.

The formula proposed by RIL for sale of gas from 1 April 2014 is the same at which Petronet LNG Ltd, the nation’s largest liquefied natural gas importer, buys 7.5 million tonnes per annum (30 million standard cubic metres per day) of LNG from RasGas of Qatar.

Sources said while the six-member Rangarajan Committee is looking into the shape of future Production Sharing Contracts as well as structure of gas pricing, Rangarajan as a one-man panel has been asked to look into the CBM pricing.
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