Hot air

Updated: Mar 22 2005, 05:30am hrs
Gails recent decision to curb gas supplies from April 1 is a natural reaction to its main supplier, the BG-led consortium, deciding to market gas on its own. And why not, for BG has a retail market in Gujarat. Strangely, the government has directed the BG consortium to supply over half its production to the existing consumer base through Gail for a year so that supply to power and fertiliser consumers are maintained to avert political backlash. Never mind that this interference with the market mechanism is at odds with the governments avowed pro-reform stance. Agreed, there is a gas shortage, but this is not the best way of tackling that.

In fact, let alone power and fertiliser units, government has not had the courage to raise the gas price even for private and corporate consumers! A few years ago, a petroleum secretary successfully spearheaded a move to convert firm supply of two public sector fertiliser units to fall-back arrangements for two leading Indian corporates! What is worse is that till recently, ONGC bought gas at market prices from the BG consortium and sold it through Gail at subsidised prices to such consumers! Rather than helping shape the nascent gas industry, the government is tinkering with individual transactions, which only aggravates the distortions in the system built over years. The net result of these distortions is that today, while the BG consortium gets paid $3.11 per mmbtu, ONGC, which is the main supplier, gets a measly $1.1 per mmbtu.

This takes us to the question of market price and the producer price that ONGC should net. BG is now seeking higher compensation, pegged around the price of regassified LNG, which is ruling at around $4.2 per mmbtu. On the other hand, Indian industry is paying $3 per mmbtu for gas in neighbouring Bangladesh. Back home, Reliance has offered to sell its domestic gas to NTPC at $2.97 per mmbtu. With such wide disparities, government should not pursue its current practice of undertaking a consultative process with consumer industries to arrive at ONGCs producer gas prices. Sub-sidies, if any, should be made explicit.