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Richa Mishra

New Delhi , Aug. 6

THE pricing of natural gas produced by Oil and Natural Gas Corporation and Oil India is likely to be decided solely by the Tariff Commission, with the Petroleum Ministry unwilling to suggest any mechanism to be adopted for the pricing.

Official sources told Business Line that the terms of reference for the proposal were still being finalised and that the Ministry would shortly be sending it to the Commission after it receives the views of the companies.

The sources, however, stressed that the Ministry was not likely to suggest any particular mechanism to be adopted by the Commission for the pricing, thereby putting at rest speculations that it might suggest the option of reverting to a cost-plus pricing method.

The Government had sometime ago approved a 12 per cent increase in the price of natural gas on an ad hoc basis. The annual revenues of ONGC are expected to go up by about Rs 1,000 crore as a result of the hike. As of June, the gas supplied by ONGC was priced at $1.19 per million British thermal unit (mmbtu), while for the North East region, it was supplied at a subsidised rate of $.94 per mmbtu. The price of gas supplied from the joint venture Panna, Mukta and Tapti was at $4.08 per mmbtu.

The Tariff Commission is to examine in detail the cost of production and transportation of the gas before fixing a final price.

While the oil majors have been seeking market-related price for the gas, the power and fertiliser ministries have opposed the move as it would mean an increase in the input costs of power and fertiliser units, which supply their products at fixed price.

Reverting to cost-plus pricing method may not be good news for ONGC, which is being paid only about one-sixth of the market price. The Government, based on the report of the Shankar Committee, had dismantled the cost-plus pricing and decided to align the consumer price of gas to international prices.

The sources said prices should not be determined by costs alone.

Companies should be allowed some margin in the prices over total cost. Upstream companies can further invest the surplus generated because of margins in exploration business.

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