The Hindu Business Line : GAIL clarifies

This is with reference to the news item, "CAG critical of ONGC subsidising GAIL's gas purchases" (Business Line, March 8): The Comptroller and Auditor General of India's exact comment, as in Para 3.4 of the mini-review report on GAIL, is: "Gas was purchased from JVs at a price higher than the sale price and the difference was adjusted from the price paid to ONGC. Higher cost of gas purchase from JVs amounting to Rs 3,477 crore up to March 2003 was thus subsidised at the cost of ONGC."

In this context, GAIL would like to clarify that the Sankar Committee has recommended adopting a pricing system for the producer price which compensates the producer the cost of production, including reasonable rate of return and consumer price designed to gradually increase and approach towards the import prices.

The Sankar Committee recommended the Producer Price for ONGC at Rs 1,800/MCM (based on cost of production+24 per cent pre-tax return).

Based on the Sankar Committee recommendations, the Government of India directed that GAIL shall pass on to ONGC in proportion to the gas supplied by them, on a net back basis, the entire proceeds of sales of gas of ONGC after making deductions for the amount required to pay for the higher cost of gas purchased from JVs and the gas pool contribution of Rs 250 crore per annum.

From the above, it is clear that ONGC is getting the cost plus return as producer price and the government-determined gas pricing mechanism of consumer price takes care of the higher JV gas cost.

Any revision in producer price and consumer price requires the approval of the Cabinet. GAIL has no role to play in the process.

Jyoti Kumar

Deputy Manager,

Corporate Communication

GAIL (India) Ltd,

New Delhi

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