CII drills holes in Rangarajan Panel report on pricing of natural gas
Industry body CII has drilled holes in the Rangarajan Panel report on pricing of natural gas based on average of global indices, saying the proposed formula was not in line with contractual provisions.
"The proposed formula is not in line with the intent of the Production Sharing Contracts (PSCs) as it neither provides for an element of price discovery through competitive arms-length bidding nor provides import parity prices," CII said commenting on the Rangarajan panel report.
The Rangarajan panel had suggested taking a weighted average of the US, Europe and Japanese gas hubs or market price and then averaging it with the net imported price of liquid gas (LNG) to arrive at a sale price of domestically produced gas.
Price according to this formula would come to USD 8-8.5 per million British thermal unit, higher than current USD 4.2 per mmBtu, but it tantamounts to government dictating the rate rather than discovering what customers are willing to pay.
"In effect, domestic gas is discriminated vis-à-vis crude oil and the Committee's recommendations lead to a price which is at a 40-50 per cent discount to import parity," CII said.
CII said the proposed price setting mechanisms were not driven by the realities of the demand supply dynamics of the Indian market.
"There is substantial linkage to the US which is a mature market and very different from the Indian market. Hence, the resultant price produced by the formula does not take into account the risks and cost of exploration and development in India and is unlikely to
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