The Hindu Business Line : GAIL not entitled to levy marketing margin on natural gas

The Petroleum Ministry has said that GAIL (India) Ltd is not entitled to levy marketing margin on supply of natural gas. The clarification comes in the wake of the ongoing tussle between GAIL and Indian Petrochemicals Corporation Ltd (IPCL) regarding charging of marketing margin on supply of natural gas by the former.

In terms of the Gas Pricing Order dated June 20, 2005, GAIL is not entitled to levy any marketing margin on any category of consumers for supply of Administered Price Mechanism (APM) or Joint Venture (JV) gas, the Petroleum Ministry has said. Questions were raised whether GAIL is justified to levy the marketing margins on APM or JV gas supplied to APM or non-APM consumer in terms of the Gas Pricing Order of the Ministry.

A marketing margin is the percentage of the final weighted average selling price taken by each stage of the marketing chain. The margin must cover the costs involved in transferring produce from one stage to the next and provide a reasonable return to those doing the marketing.

Ministry's clarification

The Petroleum Ministry, while giving the clarification, said that under the administered pricing regime, no marketing margin has been allowed over and above the transportation tariff to GAIL on APM gas since beginning and on JV gas, which is being supplied through GAIL since 1997. Further, GAIL has been performing the transportation and distribution of gas as a bundled activity.

IPCL had approached the Ministry against GAIL's notice to terminate gas supplies unless marketing margins were paid. The Ministry has said, ``in the Gas Pricing Order dated June 20, 2005 effective from July 1, 2005, the Government has enunciated a dual pricing regime for different categories of consumers, which is Rs 3,200 per thousand cubic meters to power, fertiliser and Court mandated/small consumers and the market regulated price for all other consumers.''

The said Pricing Order does not envisage marketing margin on supplies to any particular category of consumers, the Ministry said, adding that there were no new marketing efforts made by GAIL post June 30, 2005 vis-a-vis any of these consumers.

Meanwhile, during the entire controversy, GAIL has been maintaining that the Government gas pricing order, which came into effect from July 1, 2005, categorises the consumers of natural gas from the offshore South Bassein fields into two groups, one group falling under the APM from whom the price of Rs 3,200 per thousand cubic meter is charged and the second group from whom a Market-Related Price (MRP) of $3.86 per MMBTU at the land fall point is charged. IPCL Gandhar, IPCL Baroda and IPCL Nagothane fall in the second category.

The Gas Pricing Order is confined to the price at the landfall point, the company had said. All downstream costs, including transmission tariff, taxes and marketing costs, are additional. Currently, IPCL Gandhar, IPCL Baroda and IPCL Nagothane are billed accordingly. IPCL Gandhar and IPCL Barorda are also buying natural gas from the Panna-Mukta-Tapti consortium, which has ONGC, Reliance Industries and British Gas as members, at a price of $4.08 per mmbtu, inclusive of marketing cost, which is 10 cents more than GAIL's price of $3.98 per mmbtu, inclusive of marketing cost.

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