Financial Daily from THE HINDU group of publications
Thursday, Aug 12, 2004
Industry & Economy - Petroleum
Differential pricing for natural gas on cards Power, fertiliser sectors to enjoy lower rates
Balaji C. Mouli
New Delhi , Aug. 11
THE Petroleum Ministry is actively considering a proposal to allow Oil and Natural Gas Corporation (ONGC) to charge differential rates for the natural gas produced by it, with power and fertiliser plants enjoying a lower tariff relative to other consumers.
Currently, ONGC earns Rs 2,850 on every thousand cubic metres of gas that it sells to GAIL (India) Ltd, which transports and markets the gas.
This price is less than a third of what consumers pay for the gas they purchase directly from non-ONGC suppliers such as Cairn, UK. Consumers purchasing gas from LNG supplier, Petronet LNG Ltd, end up paying an even higher rate.
The Petroleum Ministry's latest proposal seeks nil hike for consumers in the `core' sectors - power and fertiliser - while allowing complete deregulation of the price of natural gas for the remaining consumers, largely in the petrochemicals and LPG business.
"In cases where the output prices are completely decontrolled like petrochemicals and LPG, let the buyer and seller decide on the price of natural gas. Why should the Government dictate the prices in such cases? Where the issue is politically sensitive like power and fertilisers, Government intervention is inevitable though not desirable," a senior official said when queried on the issue.
Of the 66 mmscmd gas sold to consumers, 41.5 per cent or 27.5 mmscmd goes to the power sector, 31.8 per cent or 21 mmscmd is supplied to the fertiliser sector and the remaining 26.5 per cent or 17.5 mmscmd is sold to `non-core' sectors such as petrochemicals and LPG.
The large consumers in the `non-core' sectors are GAIL (India) Ltd, IPCL, Essar and Reliance. GAIL's LPG plant is supplied 2.8 mmscmd of gas, while its petrochemical complex at Pata in Uttar Pradesh is supplied another 2 mmscmd. The Reliance-owned IPCL is supplied 2.1 mmscmd of gas. The Essar group is supplied around 1.3 mmscmd of gas while the Reliance group is supplied another 0.4 mmscmd.
This supply of gas is significantly less than the allocation to the companies by and large except in the case of GAIL, which enjoys near 100 per cent fulfilment. In the case of IPCL, the supply is around 2.1 mmscmd as against the allocation of 3 mmscmd.
Overall, GAIL supplies around 66 mmscmd of gas against an allocation of 117 mmscmd. The power sector gets only 52 per cent of its allocation; fertiliser 65 per cent and the remaining consumers get around 51 per cent of the allocation made by the Government.
The upside of the Ministry's proposal is that it will find political acceptability since the pricing of gas in `core' sectors are untouched.
The earlier Government, in consultation with the buyers, had cleared a proposal to raise the price of natural gas by Rs 350 per mmscmd.
However, this did not see the light of the day since the proposal was formulated close to the recent Parliament elections.
The downside of the proposal is that the ONGC fields are aging and hence production is on the decline.
In this backdrop, this pricing policy will not have much of a future.
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