The Hindu Business Line : Panel moots formula for gas price valuation

A high-level committee appointed by the Petroleum Ministry to work out guidelines for valuation of natural gas has recommended a formula by which the Government's share of royalty and profit petroleum would be at the market-determined price, even though the producer sells to the consumer at a negotiated price.

The committee is understood to have proposed that in cases where gas price has not been determined through competitive bidding, the valuation should be based on the most recent price in that region, duly indexed to the current level.

In other words, if sales price is not arrived at through competitive bidding, the Government's stake in terms of royalty and profit petroleum may be determined on the basis of the suggested valuation formula and the producer should be liable for ensuring such payments.

How the resultant additional burden will be shared between the producer and the consumer should be left to them to mutually decide, official sources said.

While reiterating that price determination through competitive bidding process is the best, the committee has said that only in cases where price is not reached through an arm's-length mechanism should the question of adopting guidelines for valuation of natural gas arise.

The committee was set up to formulate transparent guidelines for approving gas price formula/guidelines for giving Government approval under the production-sharing contract (PSC).

The sources also said that in cases where actual supply of gas has not yet commenced, the process of price discovery through the open market mechanism must be adopted as provided under the PSC.

The Ministry constituted a five-member committee in August following the controversy between RIL and Reliance Natural Resources Ltd (RNRL) over gas pricing from RIL's Krishna-Godavari basin.

The Ministry had received RIL's proposal on the gas price, since Government nod is needed under the terms of PSC.

Besides, it also involved valuation of Government's share of royalty and profit petroleum.

The committee recently submitted its report to the Ministry, which would take a final call on the recommendations.

The mandate of the committee was to suggest transparent guidelines for valuation of natural gas in exceptional cases where arm's-length approach as stipulated under the PSC is not been possible for some reasons in the context of the Government stake - profit petroleum and royalty.