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Allow markets to decide gas prices, says Panel

A government committee favours a market-driven pricing strategy to decide gas prices in Krishna-Godavri (KG) basin, reports Deepak Joshi.
Hindustan Times | By Deepak Joshi, New Delhi
UPDATED ON JUL 28, 2007 04:56 AM IST

A Committee of Secretaries has put in place the broad contours of its policy on pricing of gas from deepwaters in the Krishna-Godavri (KG) basin. The committee is reported to have favoured a market-driven pricing strategy.

The issue will now be deliberated by the Energy Coordination Committee headed by Prime Minister Manmohan Singh. No date has been finalised yet for the ECC meeting.

Sources said the committee, headed by by Cabinet Secretary K M Chandrasekhar, is believed to have agreed with the contention of ministries of petroleum and law that the government needs to honour its contractual obligations, but stressed on providing the fuel to fertiliser and power sectors at an affordable price.

The Committee of Secretaries comprises Expenditure Secretary Sanjiv Misra, Power Secretary Anil Razdan, Fertiliser Secretary J Sreedhara Sarma, Petroleum Secretary M S Srinivasan and Legal Affairs Secretary T K Viswanathan.

The ministries of petroleum and law had separately contended that the promise to sell oil and gas at market determined prices needs to be honoured to show stability of policy and contracts to international investors.

Fertiliser and power ministries had stressed that market-driven pricing of gas would impact the two key infrastructure sectors, which are economic drivers. There were also fears that the fertiliser subsidy burden could balloon due to high pricing. Anil Ambani had also opposed the pricing formula offered by RIL.

In its presentation to the committee, state-run Oil and Natural Gas Corporation (ONGC) had also opposed market-driven prices for KG Basin gas. “Market driven prices are difficult in a country where demand outstrips supply. The gas price should be fixed in a manner that the producer should have enough incentive to produce and invest in future projects,” ONGC officials had contended.

On the other hand, RIL had argued that government revenues at $ 4.3 per million British thermal unit (mBtu) price would more than compensate for rise in fertiliser subsidy in case gas was used in expansion of such units.

Sources said the report calls for addressing the contention of the fertiliser sector that government subsidy burden would go up substantially if delivered price of gas was higher than three dollars per mBtu (RIL’s delivered price came to around six dollars per mBtu), while deciding on the price.

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