The Hindu Business Line : Tariff panel to submit report on natural gas prices in Nov

The Ministry of Petroleum and Natural Gas, which has referred the issue to Tariff Commission for suggesting a mechanism for the pricing of natural gas, has left it to the Commission to examine the alternative route for fuel prices. The Commission has been asked to submit its recommendations by the middle of November, a senior Petroleum Ministry official said.

The official told Business Line that the matter was referred to Tariff Commission in the second half of August and the Ministry has asked the Commission to submit its recommendations in next three months. On whether the Ministry has asked the Commission to consider the option of reverting to a cost-plus pricing method, the official said that no methodology has been prescribed for the Commission's consideration. Reverting to cost-plus pricing method may not be good news for ONGC, which is being paid only about one-sixth the market price.

The terms of reference for the proposal before the Tariff Commission were finalised after considering the views of the companies. The Commission is to examine in detail the cost of production and transportation of the gas before fixing a final price. Further, it could also factor in the prices of alternative fuel as well as the market-related prices.

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 input costs for power and fertiliser units, which supply their products at fixed price.

Based on the report of the Shankar Committee, the Government had dismantled the cost-plus pricing and decided to align the consumer price of gas to international prices. The official said that 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.

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.

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