Gas price hike to add Rs 1,950 cr to ONGC profits this fiscal

Written by PTI | New Delhi | Updated: Oct 19 2014, 19:21pm hrs
State-owned Oil and Natural Gas Corp (ONGC) will rake in about Rs 1,950 crore in additional profit this fiscal from the 46 per cent rise in natural gas prices announced by the government.

After postponing three times, the government yesterday approved a revised formula of pricing almost all domestically produced natural gas from November 1. The current price of USD 4.2 per million British thermal unit will rise to USD 6.17 per mmBtu on a like-to-like basis.

Finance Minister Arun Jaitley yesterday said the price from November 1 will be USD 5.61 per mmBtu on heat value the fuel will generate on gross calorific value (GCV) basis.

But the current USD 4.2 per mmBtu rate is on net calorific value (NCV) basis, which is roughly 10 per more than heat value on GCV basis. In GCV terms, the current price comes to USD 3.8 per mmBtu.

Using GCV methodology announced by Jaitley, the price has gone up from USD 3.8 to USD 5.61 per mmBtu, over 46 per cent rise. If compared on NCV terms, the price will rise from USD 4.2 to USD 6.17 per mmBtu, a 46 per rise.

"The gas price increase is not 33 per cent - from USD 4.2 to USD 5.61 as it is not like-to-like comparison. Suppose you sell apples at a particular rate per pound and decide to price the same apple at a higher price per kg, then the increase has to be calculated on like-to-like terms," a senior industry official said.

ONGC Chairman and Managing Director Dinesh K Sarraf said the decision is a positive for the company as it will help monetise some of its small and marginal gas discoveries.

"Every USD 1 rise in gas price increases our revenues by Rs 4,000 crore and net profit by Rs 2,350 crore," he said.

An almost USD 2 increase in gas price will result in ONGC net profit going up by about Rs 4,700 crore on an annualised basis. For the five months of current fiscal, ONGC will stand to benefit about Rs 1,950 crore, he said.

The price may however be not enough for some of its deepsea gas finds particularly in the Krishna Godavari basin but the clause in yesterday's Cabinet approval that gas rates will be revised every six months with the next revision being on April 1, spells hope for the company.

By the time the discoveries come on production in 2018, rates would have risen further.

The new price, based on the recommendations of a Committee of Secretaries (CoS) that reviewed the UPA government's gas pricing guidelines of January 2013, would lead rise is gas-based power generation as well as fertilizer cost going up. It will also result in CNG and piped cooking gas (LPG) going up.

Also, the government will get additional revenue of Rs 3,800 crore annually.

The new price will be determined on Gross Calorific Value (GCV) basis and reviewed every six months against the quarterly price changes approved by the previous UPA government based on Rangarajan committee recommendation.

The first price would be determined on the basis of global prices prevailing between July 2013 and June 30, 2014. This would come into effect from November 2014, and would be valid till March 2015.

The price would then be revised for the next six months ending September 2015 on the basis of prices prevalent between January 2014 and December, 2014. The prices would be announced 15 days in advance of the half year.

The Rangarajan formula would have resulted in gas prices rising to USD 8.4.

Sarraf said yesterday's decison of the Cabinet will incentivise more exploration and production.

The clause that a premium will be paid for gas discoveries henceforth made in deepwater and ultra-deepsea as well as high temperature, high pressure finds, will attract investments, he said.

The revised gas price would be applicable to all gas produced from nomination fields given to ONGC and OIL India, New Exploration and Licensing Policy (NELP) blocks, some pre-NELP blocks and coal-bed methane blocks.

The new prices would not apply to small and isolated fields in nomination blocks and those pre-NELP blocks where government approval has not been provided under the production sharing contract.