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Supreme Court wants to know why gas price formula is 'complex'

Apr 04 2014, 01:49 IST
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On March 24, the EC had asked the government to defer the implementation of the decision to  revise gas price. Reuters On March 24, the EC had asked the government to defer the implementation of the decision to revise gas price. Reuters
SummaryAsks how Niko sells at $2.3 in Bangladesh vs Rangarajan’s $8.2.

In what could spell fresh trouble for India’s hydrocarbon explorers, the Supreme Court on Thursday asked the government to explain why it chose the “complex” Rangarajan formula for gas pricing when it could have adopted “simpler methods” like cost-plus pricing or revenue-sharing.

A bench headed by Justice BS Chauhan asked the government to file an affidavit explaining how Canada’s Niko Resources, which holds 10% in Mukesh Ambani-led Reliance Industries’ KG D6 block, is able to sell gas in Bangladesh at $2.34 mmBtu, half the current price in India.

The SC’s direction while considering two separate public interest litigations (PILs) — one by Communist Party of India leader Gurudas Dasgupta and another by NGO Common Cause — has complicated matters for the government.

On March 24, the Election Commission had asked the government to defer the implementation of the decision to revise gas price from April 1, as per the guidelines based on Rangarajan formula.

Appearing for the government, solicitor general Mohan Parasaran told the court that there were major differences between the oil fields in India

and Bangladesh. While Bangladesh has on-land fields which require less time and investment to explore and develop, India has deep water blocks such as KG D6, off the Andhra coast.

He further argued that the government is not aware of the terms and conditions of the production sharing contract between Niko and the Bangladesh government and also the stage of exploration in the neighbouring country.

The court, however, asked the government to filed a detailed affidavit explaining the differences in prices and posted the matter for further hearing on April 9.

While the gas price hike is stuck in the court and the Election Commission, analysts say even the Rangarajan formula would not be enough for gas exploration and production in India to be remunerative and stimulate investments. Stating that only 69 tcf of “proved and possible” gas resources have been discovered over the last six decades, a report by global consultancy firm IHS-CERA said 12 major basins showed potential for another 64 tcf of yet-to-be-found (YTF) reserves. However, it added, these lie in deep water, ultra deep water or other difficult areas necessitating very high levels of risk capital. It said even the price of $8/mmBtu (which is roughly what the Rangarajan formula would immediately yield), deep water discoveries are hardly economic. “A price of $10/mmBtu and above is required to develop most of

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