Oil ministry mulls gas pricing in Indian rupee

Written by Siddhartha P Saikia | New Delhi | Updated: Jul 18 2014, 14:09pm hrs
Gas pricingIf the gas price is notified in rupees, the risk would have to be shared by the producer.
The petroleum ministry is examining a proposal on whether pricing of natural gas produced from domestic fields can be notified in rupees, instead of dollars as the current practice goes. This is being contemplated to insulate consumers from fluctuations in rupee-dollar movement.

However, the production sharing contract says the gas price should be in a freely convertible currency. The matter is how to compensate for the costs incurred in dollars. In two weeks, the ministry should be in a position to take a view on this, a senior official told FE.

Legal experts, however, say the government cannot unilaterally make changes in the PSC as RIL bagged the contract in a global competitive bidding process. Any such move can be challenged in courts, a Supreme Court lawyer said.

The upstream companies hire field services from overseas, which are paid in dollar. If the gas price is notified in rupees, the risk would have to be shared by the producer. In case the rupee strengthens against the dollar it would be beneficial and vice-versa. The rupee is expected to strengthen on positive sentiments after the BJP has come to power, said an official with a private exploration company.

The petroleum ministry may find it difficult to implement the rupee pricing regime for blocks auctioned under the New Exploration Licensing Policy regime. The production sharing contract says the accounts shall be maintained in US Dollars, which shall be the controlling currency of accounts for cost recovery, and profit sharing purposes.

RIL's lead counsel Harish Salve said that to make such changes, the government will have to change the law and the same would be applicable to all PSCs. "It doesn't seem to be a serious proposal. Even if it happens, the government would be sued under Bilateral Investment Treaties. And not only this, not a single rupee will come in as FDI," he told FE.

On June 25, PM-headed Cabinet Committee on Economic Affairs decided to defer the Rangarajan-formula based gas pricing regime by three months. It was decided in the last CCEA meeting that "comprehensive" talks will be held with all stakeholders before arriving at a final decision on gas pricing. The UPA-government approved Rangarajan-formula that has averaged gas price of US, UK, Japan would have doubled domestic prices from the current $4.2/mBtu. The revised price is to be levied for output from all sources such as conventional gas, shale gas or coal-bed methane.