Gas pricing policy in India has to be fixed and the 2014 formula has to be done away with, opined Vivek Rae, Chairman of Hindustan Oil Exploration Company (HOEC) on Saturday. Rae said the current formula is “myopic” and does not incentivise gas producers. In India, gas penetration is 6 per cent as against a global average of 23 per cent. The pitch is to improve this number to 15 per cent over the next few years.
India’s gas price is determined at an average price of LNG imports into India and benchmark global gas rates. “The gas pricing policy in India is myopic. We are simply underpricing a scare resource. At current prices, you are penalising the producer and somehow the consumer trumps the producer,” Rae, a former oil secretary said during a discussion on a book, “Unfilled Barrels: India’s Oil Story”, authored by Richa Mishra.
“This is a crazy formula. We are benchmarking our resource price based on the price in countries where the resource is not scarce,” he explained.
India’s policy-makers need to get the pricing right, while predatory taxation needs to be done away with. Similarly, there is a need to clean up the taxation structures while policy stability needs to be brought in.
Speaking on the occasion, Raghuvir Srinivasan, Editor, BusinessLine, said, despite all the reforms in the sector, the “downstream segment is a bit of a mess”. While sector regulators in telecom and elsewhere have been successful, this has not been the case with regards to petrol.
However, on the positive side, Indian companies have created “world class assets on the ground” including refineries and this “despite the shackles on them”.
“We have created assets that can supply to over one billion people without any disruption. There is no State or city that has seen a fuel crises or run out of fuel in recent times,” he said.
‘A weaponised resource’
According to Srinivasan, oil reserves continue to be in the domain of oligarchs and big corporates. The current geo-political happenings show that “the natural resource has been weaponised”.
“Russia is threatening to cut gas supplies and the western world is responding in kind too. And in the middle of this, there are countries like India – who have no stake – who are paying the price,” he said.
Explaining some of the dynamics, Sunjoy Joshi, Chairman, Observer Research Foundation, said the upstream segment is a high risk segment and is also about probabilities.
“So if you see, Venezuala and not Saudi Arabia has the highest oil reserves. So upstream segment is all about probabilities and it remains a high risk one,” he said.