The ministries of petroleum and finance are yet to reach a consensus with regard to the premium gas pricing, an issue that has been hanging for one-and-a-half years and which the investors are keen to see resolved. “There is a thinking that the issue may be referred again to the Cabinet Committee on Economic Affairs (CCEA),” a senior government official privy to the development told FE.
On October 18, 2014, CCEA held out a promise to investors in the hydrocarbon sector such as Reliance Industries, BP, ONGC and GSPC, who were unhappy with the quantum of price increase that the formula allowed (the price now is roughly the same as before the new formula), that sufficient incentives would be available for developing gas fields in geologically difficult areas.
The industry petitioned the petroleum ministry that the premium gas pricing should be levied to fields discovered prior to cut off date set by the government of November 2014. With commodity prices seeing bottom out, investing in deepwater gas finds in Krishna-Godavari or Mahanadi basins have become economically unviable. When asked if the government would consider implementing premium gas pricing retrospectively, petroleum minister Dharmendra Pradhan recently said the government has a decision in-place and there is no change. The bone of contention is that the finance ministry is of the view that petroleum ministry’s proposal for letting firms sell up to half the output from difficult and challenging fields at market rates is not according to the decision taken by the CCEA in October 2014.
Though Pradhan has maintained that there is an ‘in-principle agreement’ on the issue between him and finance minister Arun Jaitley, in reality, the implementation of the proposal is seeing being delayed inordinately. North Block has decided to differ with the petroleum ministry citing many reasons for its stance: Absence of sufficient competition among gas producers, tepid demand, the impracticality of freeing input (gas) price when output prices (power and fertiliser) are not market-determined and have grave implications for the exchequer and, finally, its assumption that a higher price might not result in a surge in investments by gas producers at this juncture.
The petroleum ministry had proposed that difficult areas be categorised into five groups and market-determined pricing for 20-50% of these fields’ output; the more difficult a field, the larger
its share of sales in the open market. Difficult fields include high-tempe-rature/high-pressure areas and deepwater and ultra-deepwater ones.