The Hindu Business Line : Govt to approve formula for gas pricing: Deora

Pricing Policy
An internal committee has recommended formulation of transparent guidelines.
Valuation of natural gas may be done based on most recent competitively determined price in the region duly indexed to the present.

The Minister for Petroleum and Natural Gas, Mr Murli Deora

New Delhi , Dec. 5

The Union Petroleum Minister, Mr Murli Deora, said on Tuesday that the Government would approve the formula on the basis of which gas pricing will be done for computing Government revenues from gas discovered under the Production Sharing Contract (PSC) regime.

Informing the Rajya Sabha, the Minister said that an internal committee headed by Joint Secretary and Financial Advisor in his Ministry has recommended formulation of transparent guidelines for approving natural gas price formula/basis for the purposes of computing Government revenue (profit petroleum and royalty).

"The Committee being a departmental one and entrusted with the task of valuation of Government take under the PSCs, did not include members of other ministries. However, the committee had sought the views of various stakeholders across different sectoral industries and users before finalising their recommendations," he said.

Other responses

Responding to another question on recommendations of the committee, the Minister of State for Petroleum and Natural Gas, Mr Dinsha Patel, said, where valuation of natural gas has to be necessarily done by the Government, it may be done based on most recent competitively determined price in the region duly indexed to the present.

The indexation would be as per the provisions of market-determined contract, as each market determined price has a contract, which sets out various terms and conditions for supply of natural gas, he said. The Minister further said that typically long-term gas contracts have a clause for periodic gas price reviews.

"If price is reviewed as per the contract, that may become new reference price. For interim period it may be linked to percentage increase in price of furnace oil. Furnace oil is not only the cheapest liquid fuel, but has also shown least price volatility in recent years."

Valuation methodology

The valuation methodology would be applied when actual supply has commenced and price could not be discovered through market mechanism. "If the actual price at which any producer supplies to any consumer happens to be higher than the one arrived at by above methodology, then the higher price shall be reckoned for the Government take," Mr Patel said.

In the eventuality of applying the committee's recommendations, Director General, Directorate General of Hydrocarbons (DGH) and Director, Petroleum Planning and Analysis Cell (PPAC) would jointly calculate and determine the valuation based on committee's recommended methodology. "DGH shall also be responsible to ensure that the gas producer remits government's take (profit petroleum and royalty) accordingly," he said.