The Hindu Business Line : GAIL favours market rates for gas pricing

While favouring a transparent mechanism for reaching a decision on pricing of natural gas, GAIL (India) Ltd is of the view that gas should be available for sale on equitable and non-discriminate basis to any buyer who is ready to pay market price.

As there are limited sellers and shortage of domestic gas and with a large number of buyers pitching for same gas, the product should be available to buyer who is willing to pay the market price, GAIL has said.

The company has submitted its comments to a high-level panel constituted by the Petroleum Ministry to work out a gas pricing formula, which is to be adopted in the absence of arm's-length transaction between seller and buyer.

GAIL has also said that in the absence of a transparent mechanism, the gas prices should be linked to alternative fuels available in that area, after normalising the price by taking into account various elements of delivered price of alternative fuels in such situations.

The Ministry has been caught in the crossfire between Reliance Industries Ltd and Reliance Natural Resources Ltd, which are in a dispute over gas price.

It has set up the panel to examine alternatives for approving the price formula under product sharing contract in situations where open competitive bidding process to discover the end price of gas has not been adopted by the seller.

The panel (constituted in August), which has been given two months, has sought comments of all the industry players before firming up its view.

According to sources, GAIL is of the opinion that such linkages (gas price to alternative fuels) would help the Government realise its right opportunity cost of the gas under product sharing contract in the form of royalty and profit petroleum.

However, it is also necessary to allow some rebate or reduction from alternative fuel prices besides other normalisation, as the supply of gas through pipeline is relatively rigid in comparison to flexibility available with alternative fuel prices, GAIL said.

The company has also said that it is necessary to have ceiling price to take care of the maximum affordability of large consumer base in that area, and there should also be a floor price to take care of cost plus price of the gas under product sharing contract.

GAIL has also said that even in case where price discovery is through arm's-length transactions, it should be through open bidding process by the seller and the price so discovered should be the reference price for the purpose of royalty and profit petroleum recovery.

Where the price discovery is not through such a mechanism, the price for payment of royalty and profit petroleum should be as per the methodology of linking it to alternative fuels available in that area or actual price, whichever is higher, it added.

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