CAG raps OilMin for letting Reliance Industries charge marketing margin in dollars

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New Delhi | Published: May 5, 2015 7:12:40 PM

Government auditor CAG today criticised the Oil Ministry for allowing Reliance Industries to charge a marketing margin on its KG-D6 gas in US dollars...

Reliance Industries marketing marginReliance Industries has been charging marketing margin based on the energy equivalent of gas supplied ie USD 0.135 per mmBtu. (Reuters)

Government auditor CAG today criticised the Oil Ministry for allowing Reliance Industries to charge a marketing margin on its KG-D6 gas in US dollars terms and not in rupees saying it will result in over Rs 201 crore excess subsidy payout on urea.

“Production Sharing Contract (PSC) for KG-D6 block did not provide for marketing margin component.

The contractor (RIL), however, has been charging marketing margin based on the energy equivalent of gas supplied ie USD 0.135 per mmBtu,” the Comptroller and Auditor General (CAG) said.

The marketing margin is over and above the government approved natural gas sale price.

In a report tabled in Parliament today, CAG said the Oil Ministry had in March 2009 stated that government had not fixed or approved the quantum of marketing margin till date for sale of natural gas by any company.

Thereafter, the ministry in May 2010 fixed marketing margin of Rs 200 per thousand cubic meters (mscm).

“Marketing margin for GAIL was fixed in Indian rupee whereas contractor (RIL) was charging this in terms of US dollar,” it said.

Charging of marketing margin for KG-D6 gas in US dollar instead of Indian rupee for a commodity produced, marketed and consumed domestically “is incongruous with Indian market,” CAG said, adding that exchange fluctuations meant that the margin which was Rs 244.31 per mscm in 2010-11 increased to Rs 325.51 per mscm in 2013-14.

Ministry of Chemical and Fertilizer estimates that charging marketing margin of USD 0.135 per mmBtu for KG-D6 gas would lead to additional subsidy outgo of Rs 125 crore a year.

“Additional impact of charging of marketing margin by contractor…on 15 million standard cubic meters per day of KG-D6 gas (supplied to fertilizer units on an average) in excess of marketing margin allowed to GAIL, for the period from May 2009 to March 2014 works out to Rs 201.40 crore,” CAG said.

The Department of Fertilizers in January 2014 stated that in the absence of any policy of the Oil Ministry, it has not considered marketing margin paid to RIL in the determination of cost of production and reimbursement of the urea units so far.

“Subsidy claims on account of marketing margin on KG-D6 gas was kept pending from 2009-10 ie since beginning of supplies by contractor,” CAG said.

There was a need to regulate marketing margin especially for natural gas supplies to sectors where government has to bear subsidy burden, it said.

“Ministry of Petroleum and Natural Gas should ensure that same methodology ie charging marketing margin in Indian rupee, is adopted for supply of natural gas from domestic source for use in sectors where government bears subsidy burden,” it said.

CAG said government in December 2011 asked the sectoral regulator, Petroleum and Natural Gas Regulatory Board, to determine quantum of marketing margin on the basis of actual marketing cost.

“PNGRB, however, was empowered to deal only with notified petroleum products and natural gas. As government has so far not notified natural gas for the purpose, PNGRB was not in a position to evolve any system and fix marketing margin,” it said.

The ministry, it said, in July 2014 stated that there was a need to regulate marketing margin for supply of domestic gas to urea and LPG producers, as the same had implication on the subsidy outgo. In all other cases, marketing margin was to be decided by the buyer and seller mutually.

In November 2013, it asked PNGRB to determine marketing margin for supply of domestic gas for urea and LPG producers.

The ministry informed that PNGRB has decided to engage a consultant to assist in the task and has sought time keeping in view the fact that process involves collection/analysis of data from various entities, the report said.

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