The government has decided to extend the policy of capping marketing margins for natural gas supplied to urea and LPG units to all firms in the business. Currently, marketing margin of state-run GAIL is fixed by the government whereas the private-sector Reliance Gas Transportation Infrastructure (RGTIL) has the freedom to determine the margin.
The petroleum ministry’s move, based on Petroleum and Natural Gas Regulatory Board (PNGRB) recommendations, could have implications for RGTIL which operates the East-West Pipeline (EWPL) between Kakinada in Andhra Pradesh and Bharuch in Gujarat, but since the current volume of gas taken through the 1,375-km pipeline is very low, the immediate impact would be marginal.
Had the production from Reliance Industries’ KG-D6 block been 69 million metric standard cubic metres per day (mmscmd), the peak level achieved once, the annual reduction in marketing margin for RGTIL due to the decision would have been R500-800 crore. EWPL has a capacity to carry 80 mmscmd of gas.
According to sources, the petroleum ministry would soon seek the approval of the Cabinet Committee on Economic Affairs to fix the marketing margin for natural gas at R200 per thousand standard cubic metres for all players. This would mean GAIL and RGTIL cannot charge more than 8-10 cents per million British thermal unit (mBtu) from urea and LPG plants as marketing margin. This is much lower than 13.5 cents per mBtu levied by RGTL at present. GAIL’s current marketing charges hover around 8-10 cents.
The issue of whether the government should regulate the marketing margin has been hanging fire for over two years. According to petroleum minister Dharmendra Pradhan, the government needs to regulate the marketing margin for supply of domestic gas to urea and LPG producers as it has implications for the Centre’s subsidy outgo. In other cases the marketing margin should be decided by buyers and sellers mutually and any complaints about exercise of monopoly power should be addressed by PNGRB or the Competition Commission, he said.
In November 2013, the petroleum ministry had asked PNGRB to determine the marketing margin for supply of domestic gas to urea and LPG producers, through an independent process.
The current production at RIL’s KG-D6 block is around 11 mmscmd, which is a far cry from the peak level of over 69 mmscmd achieved in early 2010. In first quarter of FY16, RIL revenues for domestic E&P operations stood at 1,200 crore, a 22.9% drop compared with Rs 1,557 crore in the same quarter last year. This was because of lower oil and condensate prices and decline in gas production.