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Oil regulator refuses to fix RIL gas marketing margin

Last Updated: Tuesday, May 8, 2012 - 18:25

New Delhi: Oil regulator PNGRB has refused to fix the marketing margin that firms like Reliance Industries and state-owned GAIL India Ltd could charge on sale of natural gas, saying it does not have powers to regulate the fuel.

The Petroleum and Natural Gas Regulatory Board (PNGRB) last week wrote to the Oil Ministry, saying it cannot decide on the marketing margins as natural gas as a product has not been formally notified by the government for adjudication by the Board, sources privy to the development said.

The Oil Ministry on December 26, 2011, asked PNGRB to determine the quantum of marketing margin chargeable on sale of natural gas to end consumers by a marketing entity.

The Board on February 14 issued notices to companies like RIL and GAIL seeking information on cost of production or import or acquisition of natural gas, the selling price of the fuel to end consumers and itemised detailed break-up of the difference between the two.

But PNGRB has now suddenly felt that it is not authorised to decide on the fuel. The full Board of PNGRB, sources said, felt that the ministry's December 26, 2011 reference was under Section 11(j) of the Petroleum and Natural Gas Regulatory Board Act of 2006.

Section 11(j) states that the Board will "perform such other functions as may be entrusted to it by the Central Government to carry out the provisions of this Act."

PNGRB Board felt that the regulator can take up the determination of marketing margin only under Section 11(f) of the Act which states that the Board can "monitor prices and take corrective measures to prevent restrictive trade practice by the entities" in respect of "notified petroleum, petroleum products and natural gas".

Since natural gas has not been notified by the government as a commodity whose prices it can regulate, PNGRB was not competent to regulate marketing margin, the Board felt.

Industry sources however expressed shock at the decision as PNGRB has for all these months been sitting on the issue and had even solicited data on marketing entities. If it was not authorised to deal in the natural gas, it should have said so at the every beginning.

Also, if natural gas has not been notified as a product for PNGRB to regulate, then a lot of activities that the Board is currently doing like city gas licensing would also be illegal, they felt.

RIL charges USD 0.135 per million British thermal unit as marketing margin over-and-above the KG-D6 gas sale price of USD 4.205 per mmBtu.

GAIL on the other hand charges a USD 0.20 per mmBtu marketing margin on gas produced from the BG Group-operated Panna/Mukta and Tapti fields in the Western Offshore and a similar margin on the sale of imported LNG.

While RIL's marketing margin is fixed for the five-year period ending March 31, 2014, the margin charged by GAIL on PMT gas and LNG increases by 5 per cent every year.

GAIL also charges a fixed marketing margin of USD 0.11 per mmBtu on selling gas that state-owned Oil and Natural Gas Corp (ONGC) and Oil India Ltd (OIL) produce from domestic fields.

RIL had questioned the move to regulate the marketing margin, which was in lieu of the risks and costs incurred on marketing the gas. It is to cover risks like seller liabilities in case of non-supply, customers drawing less than their quota, non-payment of dues and settlement of disputes.

GAIL is not comfortable with the idea of regulating a marketing margin on a free market commodity like LNG. Unlike domestic gas, the government, it feels, has no role in either fixation of the price of LNG or its users and so the marketing margins, too, should not be regulated by it.


First Published: Tuesday, May 8, 2012 - 18:25
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