In a significant development, the Model Production Sharing Contract (MPSC) for the seventh round of the New Exploration Licensing Policy (Nelp-VII) has incorporated the empowered group of ministers? (EGoM) recommendation on gas pricing.
The eGoM had clearly specified that ?the price discovery process on arms length-basis will be adopted in future Nelp contracts only after the approval of the price basis or formula by the government. The prices discovered through this process would be applicable to all the sectors, uniformly.? In nutshell, the government will have its say in gas pricing. The auctioning of the Nelp-VII would begin from November 5.
The decision has been taken in this regard after learning a lesson from the recent imbroglio over pricing of natural gas from Reliance Industries Ltd?s D-6 Block. The government thus wanted to avoid repeat of such incident.
A senior official of a state-run oil company told FE that after the eGoM?s recommendation, the empowered committee of secretaries?which is the approving authority for the MPSC for Nelp-VII?has modified Article 21.7 of the MPSC. The revised MPSC reads, ?The formula or basis on which prices determined pursuant to Article 21.6 shall be approved by the government prior to the invitation of price bids by the contractor for sale of natural gas to the consumers or buyers, within sixty business days from the receipt of proposal or from the date of receipt of clarification or additional information, where asked for by the government. The price of natural gas arrived at through the approved formula or basis will be applicable uniformly to all the consuming sectors indicated under Article 21.3.1.?
Moreover, as per MPSC, the developer will be allowed to retain up to 60% of the original contract area, including any development and discovery area not more than three areas of simple geometrical shapes and relinquish the balance of the contract area prior to the commencement of the second exploration phase. Notwithstanding the provision of this article 4.1, in the event the development areas and discovery areas exceed 60% of the original contract area, the contractor would be entitled to retain the extent of development areas and discovery areas.
Further, there would be only two exploration phases. The official observed this is expected to curtail the tendency to hold on to acreages on one pretext or other in spite of the provision of relinquishment.