The Ashok Chawla committee on pricing and allocation of scarce natural resources has proposed that the downstream oil regulator Petroleum & Natural Gas Regulatory Board (PNGRB) be entrusted with the pricing of gas. The proposal, if implemented, could make gas price discovery more market-linked and encourage producers to augment output.
When government determines the formula for price discovery as it does now, its policy priorities could come in the way of ascribing the right price to the resource. For instance, the fact that higher gas price could inflate its fertiliser subsidy bill could weigh on the government?s mind as it fixes gas prices. The regulator?s mandate would, however, apply only to gas produced from blocks allocated under the new exploration licensing policy (Nelp).
Gas being national resource, its pricing is currently decided by the government. An empowered group of ministers (EGoM) headed by the finance minister has approved the pricing formula which is currently ruling at $4.2 per metric million British Thermal unit or mmbtu.
The PNGRB is currently vested with the authority to regulate the refining, processing, storage, transportation, distribution, marketing and sale of petroleum, petroleum products and natural gas excluding production of crude oil and natural gas but has no powers to decide pricing of fuels.
The Chawla committee said that freeing gas prices should not disturb the present system and the existing price contracts can be preserved. The subsidies, wherever required, should be transferred directly to the end consumer or met transparently through a budgetary mechanism, it said.
If the pricing is by an independent regulator, then subsidy outgo to various gas users like fertiliser units will not be a consideration while fixing the price. This would improve price realisation for companies like Reliance and ONGC. Currently, RIL gets only $4.2 per mmbtu for gas, which was decided when crude price was $60 per barrel.
Taking lessons from the 2G spectrum scam, the panel also recommended that in future, all the fresh telecom spectrum allocations for commercial usage should be done only through competitive auctions. It has supported the TRAI recommendation of a single unified telecom licence and that spectrum should be delinked from licence for all existing and new users. The draft report has also proposed an independent spectrum regulator who will conduct periodic spectrum audits and recommends on spectrum vacation.
The Chawla panel was set up in the backdrop of the 2G scam, rampant cases of illegal mining across the country, controversies related to pricing of natural gas, and the potential that shale gas and other natural resources offer for the country’s economy. The committee has also pondered over the allocation policy for oil, coal, mining, other minerals, water and land owned by the government, and is expected to submit its report to the group of ministers adressing corruption shortly.
In coal sector, the panel is learnt to have recommended that mining firms be allowed to take part in auctions for captive blocks. Currently, captive blocks are only given to approved end-users in power, steel and cement sectors. The committee has also favoured opening up of the regulated coal sector and suggested that this could be initiated by creating a platform for commercial trading of coal. This, it said, could be managed by Coal India (CIL) and engage all approved end-users to participate in the trading process. The panel has proposed a bidding mechanism for specified minerals like iron ore at the surficial deposits with lower prospecting costs. The panel has asked to bid out high-potential areas for large area prospecting licence or prospecting licence similar to a production sharing contract, in addition to royalties, such that the risk distribution is similar to Nelp. The panel has cautioned against the 26% profit-sharing norms proposed by the mining ministry. It has said that land oustees could be rehabilitated properly by enhancing royalty rates of minerals and earmarking a specific portion for transfer to non-lapsable fund in mining districts. As reported by FE , the mines ministry differed with the panel’s proposal to introduce bidding mechanism for the reconnaissance license. This, the ministry felt, would disincentivise exploration.