The Indian government may appoint a regulator to help it determine the price of natural gas that is supplied by oil and gas explorers, such as Reliance Industries Ltd (RIL), to power and fertilizer firms.
An empowered group of ministers (eGoM) looking into the issue of allocating gas to fertilizer, power and some other companies has directed the oil ministry to “suggest an appropriate regulatory authority to aid and advise eGoM on the issue”. Mint has reviewed a copy of the minutes of the eGoM meeting on 24 February.
The suggestion follows a plea by RIL in 2010 to increase the price of gas midway through its five-year supply contracts with consumers on the grounds that the price it is charging is at a discount to global prices.
RIL started supplying gas from its D6 fields in the Krishna-Godavari (KG) basin in April 2009 to power and fertilizer companies at a base price of $4.2 (around Rs. 214 today) per million British thermal units. The supply contracts end in 2014, after which they have to be renegotiated.
“EGoM further noted that the gas prices fixed in 2009 were valid for a period of five years, and on this ground, the request of the contractor for revised prices was turned down in 2010 itself when international prices were comparatively lower,” according to the minutes of the meeting.
An oil ministry spokesperson declined to comment.
“We are not privy to such eGoM-ministry communications, therefore, cannot comment,” an RIL spokesperson said in a response to an emailed query.
To be sure, the oil and gas industry is already governed by two regulatory bodies. The Directorate General of Hydrocarbons (DGH) advises the oil ministry on technical and economic issues related to the sector. It comes under the oil ministry’s administrative control. The Petroleum and Natural Gas Regulatory Board (PNGRB) oversees transportation tariffs and other costs of petroleum commodities related to refining, processing, storage, transportation, distribution, marketing and sale.
Unlike DGH, PNGRB was created by an Act of Parliament and functions independently.
S. Krishnan, chairman of PNGRB, said he was not sure if the agency would be asked to regulate gas pricing. “I cannot say if such a move would contravene any existing guidelines,” he said.
Sunjoy Joshi, a former oil ministry official and director of the New Delhi-based Observer Research Foundation, said that in all likelihood, the government would go in for a new regulatory body. Observer Research Foundation is funded by RIL.
“The government needs an independent upstream regulator to regulate prices. So, it might go in for a new body,” Joshi said.
Dipesh Dipu, director of the consulting practice at Deloitte Touche Tohmatsu India Pvt. Ltd, disagreed.
“If the government does want to regulate natural gas prices, it will probably modify regulations to mandate the existing regulator (PNGRB) for that, otherwise there could be turf issues,” Dipu said.
RIL is facing criticism for declining gas production from the KG-D6 basin, and is involved in a dispute with the oil ministry over the denial of $1.24 billion in costs claimed by the company for developing the D6 field.
The group of ministers has also sought the advice of the law ministry and the attorney general on the issue.
On Friday, Prime Minister Manmohan Singh said that his government may change the gas pricing policy to offer incentives to producers of natural gas.
“We are conscious that remunerative energy prices are needed to ensure expanded energy supply,” Singh said at the 7th Asia Gas Partnership Summit 2012 in New Delhi on Friday. “Oil and gas are national resources and, therefore, should be within the framework of government and regulatory oversight.”
EGoM has also provided a temporary reprieve to non-urea fertilizer plants by declining to suspend gas supply from the KG-D6 field to them till at least May.
The proposed move has been “kept in abeyance” till 24 May and the fertilizer ministry has been asked to come up with guidelines on the move, which will then be reviewed by the group of ministers, according to the minutes of the eGoM meeting.
The oil ministry has held that companies producing non-urea fertilizers should be ordered to buy gas at market prices since the retail prices of non-urea fertilizers have been freed from the government control, and they can pass on the changes in input prices to consumers, Mint reported on 23 December.
Prices of non-urea fertilizers, including diammonium phosphate, muriate of potash and various categories of complex fertilizers, were freed in April 2010.
The government still regulates the retail price of urea, but is working on a draft policy to free this from its control.
The group of ministers also accepted the oil ministry’s view that existing and future allocations of gas discovered under the new exploration licensing policy to power plants be subject to the condition that the entire electricity produced shall only be sold at tariffs determined by the tariff regulator of the power plant.
An empowered group of ministers (eGoM) looking into the issue of allocating gas to fertilizer, power and some other companies has directed the oil ministry to “suggest an appropriate regulatory authority to aid and advise eGoM on the issue”. Mint has reviewed a copy of the minutes of the eGoM meeting on 24 February.
The suggestion follows a plea by RIL in 2010 to increase the price of gas midway through its five-year supply contracts with consumers on the grounds that the price it is charging is at a discount to global prices.
RIL started supplying gas from its D6 fields in the Krishna-Godavari (KG) basin in April 2009 to power and fertilizer companies at a base price of $4.2 (around Rs. 214 today) per million British thermal units. The supply contracts end in 2014, after which they have to be renegotiated.
“EGoM further noted that the gas prices fixed in 2009 were valid for a period of five years, and on this ground, the request of the contractor for revised prices was turned down in 2010 itself when international prices were comparatively lower,” according to the minutes of the meeting.
An oil ministry spokesperson declined to comment.
“We are not privy to such eGoM-ministry communications, therefore, cannot comment,” an RIL spokesperson said in a response to an emailed query.
To be sure, the oil and gas industry is already governed by two regulatory bodies. The Directorate General of Hydrocarbons (DGH) advises the oil ministry on technical and economic issues related to the sector. It comes under the oil ministry’s administrative control. The Petroleum and Natural Gas Regulatory Board (PNGRB) oversees transportation tariffs and other costs of petroleum commodities related to refining, processing, storage, transportation, distribution, marketing and sale.
Unlike DGH, PNGRB was created by an Act of Parliament and functions independently.
S. Krishnan, chairman of PNGRB, said he was not sure if the agency would be asked to regulate gas pricing. “I cannot say if such a move would contravene any existing guidelines,” he said.
Sunjoy Joshi, a former oil ministry official and director of the New Delhi-based Observer Research Foundation, said that in all likelihood, the government would go in for a new regulatory body. Observer Research Foundation is funded by RIL.
“The government needs an independent upstream regulator to regulate prices. So, it might go in for a new body,” Joshi said.
Dipesh Dipu, director of the consulting practice at Deloitte Touche Tohmatsu India Pvt. Ltd, disagreed.
“If the government does want to regulate natural gas prices, it will probably modify regulations to mandate the existing regulator (PNGRB) for that, otherwise there could be turf issues,” Dipu said.
RIL is facing criticism for declining gas production from the KG-D6 basin, and is involved in a dispute with the oil ministry over the denial of $1.24 billion in costs claimed by the company for developing the D6 field.
The group of ministers has also sought the advice of the law ministry and the attorney general on the issue.
On Friday, Prime Minister Manmohan Singh said that his government may change the gas pricing policy to offer incentives to producers of natural gas.
“We are conscious that remunerative energy prices are needed to ensure expanded energy supply,” Singh said at the 7th Asia Gas Partnership Summit 2012 in New Delhi on Friday. “Oil and gas are national resources and, therefore, should be within the framework of government and regulatory oversight.”
EGoM has also provided a temporary reprieve to non-urea fertilizer plants by declining to suspend gas supply from the KG-D6 field to them till at least May.
The proposed move has been “kept in abeyance” till 24 May and the fertilizer ministry has been asked to come up with guidelines on the move, which will then be reviewed by the group of ministers, according to the minutes of the eGoM meeting.
The oil ministry has held that companies producing non-urea fertilizers should be ordered to buy gas at market prices since the retail prices of non-urea fertilizers have been freed from the government control, and they can pass on the changes in input prices to consumers, Mint reported on 23 December.
Prices of non-urea fertilizers, including diammonium phosphate, muriate of potash and various categories of complex fertilizers, were freed in April 2010.
The government still regulates the retail price of urea, but is working on a draft policy to free this from its control.
The group of ministers also accepted the oil ministry’s view that existing and future allocations of gas discovered under the new exploration licensing policy to power plants be subject to the condition that the entire electricity produced shall only be sold at tariffs determined by the tariff regulator of the power plant.
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