The government is considering an upward revision in the administered price for natural gas to Rs 3500 per million standard cubic metres (MSCM) from Rs 3200 per MSCM (equivalent to $ 1.85 per millon British Thermal Units) in view of a draft report submitted by the Tariff Commission.
The move follows representations from public sector Oil and Natural Gas Corporation (ONGC) and its joint venture partners in Ravva satellite fields, Petroleum Ministry officials told Hindustan Times.
Subsidised gas sold under the Administered Pricing Mechanism (APM) is provided largely to key infrastructure sectors like fertilisers and power. The price of APM gas was last reviewed in June 2005 and it was decided that a final decision would be taken after the recommendations of the Tariff Commission were available.
However, joint venture partners in the Panna-Mukta-Tapti (PMT) area had earlier this year agreed to sell gas at $ 4.75 per mBtu to GAIL (India) for two years, setting a benchmark for the market-driven price of gas, which is considerably higher than the subsidized APM gas. With the public sector companies finding increasingly difficult to provide subsidised gas, the government is under pressure to fix more remunerative prices for exploration companies.
Any decision to raise the price of APM gas is also likely to have serious implications for the Ambani siblings whose firms are clashing over the price of gas to be supplied by elder brother Mukesh's Reliance Industries Ltd (RIL) from its Krishna-Godavari (KG) basin to younger brother Anil's Reliance Natural Resources Ltd (RNRL).
The Petroleum Ministry has already rejected a price of $ 2.34 per mBtu for gas from the KG field to be supplied to RNRL, on the ground that it was not based on competitive bidding.
RNRL has since moved Mumbai High Court against RIL and any revision could result in protracted litigation, delaying Anil Ambani's ADAG group's proposed Dadri power project.
The Ravva joint venture partners had in April 2001 agreed to sell gas at $ 3.30 per mBtu until September 2006 . They contend that based on the current fuel oil prices, the price of gas would be in the vicinity of $. 9.08 per mBtu. However, the joint venture partners are agreeable to selling at a ceiling price of $ 4.75 per mBtu as in the case of PMT gas.
There are indications that Nagarjuna Fertilizers and Chemicals Ltd (NFCL), one of the existing customers of Ravva gas, is willing to pay the market price being demanded by the Ravva consortium as it would compare the price with the price of naphtha as an alternative feedstock.
Cairn Energy, ONGC, Videocon and Ravva Oil, a wholly owned subsidiary of Marubeni Corporation, own 22.5 per cent, 40 per cent, 25 per cent and 12.5 per cent stakes in the Ravva field, respectively.
The Ravva partners also point out that though their contract is valid untl 2019, it can end on completion of 1,971 million standard cubic metres of gas. Some 1,923 MMSCM of gas had already been supplied until September 2006 and the required target can be met by the year-end.