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Gas price hike ‘weeks’ away

The government may in “weeks” decide on raising prices of natural gas produced by state-owned Oil and Natural Gas Corp (ONGC) and Oil India by 30 per cent, Petroleum Secretary S Sundaresan said on Monday.

business Updated: Feb 01, 2010 23:24 IST

The government may in “weeks” decide on raising prices of natural gas produced by state-owned Oil and Natural Gas Corp (ONGC) and Oil India by 30 per cent, Petroleum Secretary S Sundaresan said on Monday.

“(It is a) matter of weeks (that a decision on raising prices would be taken),” he told reporters here.

The Oil Ministry has circulated a Cabinet note for raising price of gas under administered pricing mechanism (APM) from Rs 3,200 per thousand cubic metres ($ 1.79 per million British thermal unit) to Rs 4,142 per thousand cubic metres ($2.32 per mnBtu).

Price of APM, or the gas produced from fields given to ONGC and OIL on nomination basis is proposed to be raised in stages to Rs 7,500 per thousand cubic metres or $ 4.2 per mnBtu by 2013.

Sundareshan said the government was weighing policy options to end differential pricing of natural gas that ranges from under $2 per mnBtu (APM gas) to $ 5.73 per mnBtu (for gas produced by BG Group-operated Panna/Mukta and Tapti fields). Options for uniform pricing of gas from various sources to consumers by way of pooling of prices was being studied, he said.

Under pooling of prices, the producers will get the price as per the production sharing contract between them and the government.

However, the consumer prices will be uniform irrespective of the source of gas.

“Power and fertiliser ministries are against the hike (in APM gas price) but the finance ministry and the Planning Commission are backing the proposal,” a Petroleum Ministry official said.

“The plan will be put before the Cabinet for approval in 3-4 weeks’ time.”

The official said the note, based on the recommendation of the Tariff Commission, proposes that ONGC be paid Rs 3,875 per thousand cubic meters for the gas it produces while Rs 4,315 would be paid to OIL.

Consumer price would be 10 per cent higher than this.

Consumer ministries of power and fertiliser feel that the hike would result in increase in feedstock cost but Finance Ministry and Planning Commission were of the opinion that it would remove distortions in the market.

APM gas prices were last revised in June 2005.

About 40 per cent of the nation’s 140 million standard cubic metres a day of gas output is sold at administered price. A hike in rates of these is an attempt to reduce distortions in a market with more than a dozen rates.

The government has set $ 4.2 per mnBtu as the sale price of gas from Reliance Industries’ eastern offshore KG-D6 fields, while the gas from BG Group-operated Panna/Mukta Tapti fields is sold at $ 5.73 per mnBtu.

State-owned ONGC lost a whopping Rs 4,745 crore in revenues on selling 17.71 billion cubic metres of natural gas at a rate below production cost in the financial year 2008-09.