Business Daily from THE HINDU group of publications
Wednesday, Aug 02, 2006
Business Daily from THE HINDU group of publications Wednesday, Aug 02, 2006 |
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Petroleum Corporate - Outlook Web Extras - Petroleum
Richa Mishra
New Delhi , Aug. 1 Oil & Natural Gas Corporation's (ONGC) hope to get a better price from the sale of gas it has produced may suffer a setback if the Government accepts the recommendations of the Tariff Commission. Though the Commission, in its draft report on producer prices of gas, has suggested an 8-per-cent increase in the price of natural gas produced by ONGC to Rs 3,450 per thousand standard cubic metre (SCM), this increase is lower than the 20 per cent increase (Rs 3,840 per thousand SCM) announced by the Government. The suggested increase by the Commission is calculated on the basis of the natural gas price of Rs 3,200 per thousand SCM, which was revised by the Government by 20 per cent on June 5, sources said. ONGC's annual revenue from the sale of about 50-53 MMSCMD gas is Rs 5,000 crore. The company's gas sales are at around 18 billion cubic metre (BCM) and if the 8-per-cent increase is factored in, then ONGC's revenue will increase by only Rs 450 crore, which was still lower than the additional revenue of Rs 1,150 crore that the company would have earned if the 20 per cent increase is considered. Besides, the Commission has also suggested a differential price of about Rs 590 per thousand SCM between ONGC and Oil India Ltd (OIL) on the natural gas produced by them. The Commission has suggested a price of Rs 4,040 per thousand SCM for OIL. This differential would translate into a loss of about Rs 1,062 crore for ONGC, sources told Business Line.
Differential pricing opposed
The exploration major is understood to have submitted to the Petroleum Ministry that it does not favour this differential pricing proposed by the Commission. ONGC feels the same price should be fixed for both the entities since both sell similar products. The differential administered price mechanism (APM) structure is not conducive for the gas business, as the same deters cost-intensive development programmes in offshore areas, sources said. ONGC has argued that it faces a similar situation as OIL in Assam. The Government recently increased the price of APM (administered price mechanism) gas to all consumers other than the power and fertiliser sectors by 20 per cent from Rs 3,200 per thousand SCM. The reason being that the APM gas price would move in tandem with market price in the next five years. ONGC is understood to have submitted that before taking a final view on the producer gas pricing, the Government should consider de-linking the APM price (which applies to all the fields) from pricing and commercial conditions of gas supply to any specific consumer group.
The cost of production with returns methodology is least suitable for fixing price of a commodity like gas, as producer prices worked under this method were based on historical costs as per books of accounts, the company stated. The exploration companies are seeking market-related pricing. The normative production cost as determined by the Commission does not incorporate the impact of additional investments planned in offshore and onshore producing fields, sources pointed out.
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