Canít link local gas to foreign prices: Dharmendra Pradhan

Jul 06 2014, 23:36 IST
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Unremunerative price could stymie investment plans Unremunerative price could stymie investment plans
SummaryUnremunerative price could stymie investment plans

Adding certainty to the notion that the NDA government would dump the Rangarajan formula for gas pricing and that any new gas price it might announce after an ongoing policy review would likely be lower than what the formula would have allowed, petroleum and natural gas minister Dharmendra Pradhan told FE in an interview that domestically-produced gas canít be priced using any global benchmark.

ďIt is important to have a policy regime that ensures remunerative price to gas producers,Ē Pradhan admitted, but said: ď...is there a single product that is produced domestically but sold at international prices? Also, is there any example of a country which implements a mechanism where its indigenous item is sold at international price?Ē

As per the Rangarajan formula, based on which the UPA government on January 10 notified the pricing guidelines, the domestic price could be a simple average of two prices ó the average global price for Indian LNG imports taken as the netback price of all such imports at the wellhead of the exporting countries and the weighted average price of natural gas prevailing at Henry Hub in the US, NBP in London and the netback wellhead price of suppliers to Japan. If this formula was applied from April 1, 2014, as announced by the UPA government (the Election Commission did not allow its implementation), the domestic gas price would have nearly doubled from the current $4.2/mmBtu.

On June 25, the CCEA, headed by Prime Minister Narendra Modi, deferred a decision on gas pricing till September end, before which, it said, a comprehensive review of the gamut of relevant issues would be done.

The January pricing norms were meant to be applicable to all domestic gas. Following the CCEA decision, the trio ó Reliance Industries, BP and Niko-operating the KG-D6 block said they would collectively defer the massive investments ó certainly $4 billion planned for this year in the R-series fields ó in the asset.

Moodyís had said the combined revenues of Indian upstream companies would have risen by $2.8 billion, had the price hike been implemented on April 1.

Pradhan said: ďWe need to take care of end users (like power and fertiliser units). That is why we offer (them) subsidies. Can we sell oil and gas produced from fields in Assam at the same rate as that produced from Bombay High? We must keep in mind the status

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