The Hindu Business Line : Retrograde step

Leave alone reform, the oil and gas sector is careening backward towards the dark days of government control. The Press Note on sale of natural gas by field operators which also spells out the ‘order of priority to supply gas’ from Reliance Industries’ KGD6 field is a of a piece with recent moves by the Government that betrays its intention to not just retain control over the oil and gas sector but actually tighten it. The Note lays down guidelines to be followed by operators while selling the output from fields awarded under the New Exploration Licensing Policy (NELP). The marketing priorities will be determined by the government and the field operators are obliged to follow the priority list while selling their gas at prices determined by a government approved formula. To be sure, this is a deviation from the guidelines framed when such fields were awarded under the various NELP awards over the last decade. The NELP guidelines did not foresee a situation where the government will determine who should be sold the gas and at what price. In fact, it was the freedom in such matters that made the NELP attractive for bidders. These guidelines are not going to help matters when there is already a long shadow over the prospects for the latest round of bids under the NELP with the withdrawal of tax holiday in the last Budget.

The government should stay away from micromanaging the natural gas business; doing that in the oil business is bad enough and the results are there for all to see. It should allow free play to market forces, subject to regulatory oversight to prevent unfair business practices. Gas producers should be given the freedom to determine who they sell to and at what price, based on free market principles. If the fertiliser sector is important, so is power when it comes to gas as feedstock. If anything, the latter ought to get priority, given that fertilisers, even if there is a shortfall, can be imported while power cannot be. Fertiliser producers have to compete with power companies in the gas market and the government should not introduce artificial terms in this competition.

Interestingly, the Press Note also spells out guidelines for sale of gas by Reliance Industries from its field in the Krishna-Godavari Basin, expected to commence in the next few months. The Government says that urea producers should be given priority, followed by LPG producers, power plants and city-gas distribution companies, in that order. Seen in the context of the case pending before the Bombay High Court where Mr Anil Ambani is seeking first right to initial supplies of gas from the field, the Press Note assumes interesting proportions. Is the government seeking a way out of the logjam by dictating the priority of gas supplies? Power companies come third in its order of priority and, again, only those already operational and starved of gas will get first right of supply. So, is the Press Note really a means to get over the impasse on gas supply from the KG-Basin field?

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