Election Commission asks Oil Ministry to defer new gas price

A new pricing regime was to be implemented from next month for all private and public sector natural gas producers under which rates were to rise to USD 8.3 next month from current USD 4.2 per million British thermal units.

PTI| Updated: Mar 25, 2014, 09:17 AM IST

New Delhi: In a move that will delay revision of natural gas prices by a few months, Election Commission Monday asked the UPA government to defer notifying doubling of price of the fuel produced by companies such as Reliance Industries till general elections are completed.

A new pricing regime was to be implemented from next month for all private and public sector natural gas producers under which rates were to rise to USD 8.3 next month from current USD 4.2 per million British thermal units.

The decision was opposed by Aam Aadmi Party (AAP) which alleged that it was taken to favour RIL.

AAP leader Arvind Kejriwal, who had during his brief stint as Delhi Chief Minister ordered an FIR against Oil Minister M Veerappa Moily and RIL head Mukesh Ambani and others for allegedly conspiring to double gas prices, had asked EC not to approve the revision in rates.

CPI leader Gurudas Dasgupta and an NGO had filed a petition in the Supreme Court challenging the rate hike. The apex court is to resume hearing on the issue from tomorrow.

Though the decision to revise gas prices from April 1, 2014 was first taken in June 2013 and notified on January 10 this year, the Oil Ministry had approached Election Commission for permission to announce the new price.

The EC this evening wrote to the Oil Secretary Saurabh Chandra saying since the matter was sub-judice in the Supreme Court, a decision on revision in gas prices may be deferred.

"...After taking into account all relevant facts, including the fact that the matter is sub-judice in the Hon'ble Supreme Court, the Commission has decided that the proposal may be deferred," it wrote to Chandra.

The decision would mean that the revision is delayed for at least a few months as the new government may like to review the entire decision and take an independent view.

While today's decision by EC will not have any bearing on 80 per cent of the gas sold in the country as producers like ONGC will continue to sell the fuel at existing rates and contracts, it would mean current sales contracts entered by RIL will have to be extended beyond expiry of their term on March 31.

RIL sells less than 14 million standard cubic metres per day of gas to over a dozen fertilizer plants at USD 4.2 rate under a five-year contract that started April 2009. It had wanted to sign new contracts under the new price from next month. 

The Oil Ministry had on March 13 approached the Election Commission for its approval to announce near doubling of natural gas prices to USD 8-8.3 per mmBtu from next month.

The Cabinet Committee on Economic Affairs (CCEA) had first in June 2013 and then in December last year decided to price all domestically produced gas by both public and private sector firms at an average price of LNG imports into India and benchmark global gas rates from April 1, 2014.

The price to be applicable from April 1 was to be announced sometime this week. Oil Secretary Saurabh Chandra had met Chief Election Commissioner V S Sampath on March 13.

The new rates, which were to change every quarter based on a 12-month average of global rates and LNG import price with a lag of one quarter, will apply to all gas produced by both public sector firms like ONGC and private firms like RIL.

The price for April to June 2014 will be calculated based on the averages for the 12 months ended December 31, 2013), officials said. The rate in April is likely to be around USD 8-8.3 per million British thermal unit as against current USD 4.2, they added.

Officials said after the price announcement, the bank guarantee that RIL would have to give will also be indicated.

The CCEA had on December 20 decided to allow RIL to almost double the price of natural gas from April, 2014 provided the firm gave a bank guarantee to cover its liability if gas-hoarding charges are proved.

The bank guarantee, which will be equivalent to the incremental revenue that RIL will get from the new gas price, will be encashed if it is proved that the company hoarded gas or deliberately suppressed production at the main Dhirubhai-1 and 3 (D1&D3) fields in the eastern offshore KG-D6 block since 2010-11, they said.

Considering a gas price of around USD 8-8.3, RIL and its partners BP plc of UK and Canada's Niko Resources will have to give around USD 100 million in bank sureties.

"Prices will be revised quarterly and, in our view, will hange by USD 0.1-0.5 per mmBtu for every USD 10 change in oil prices given the linkage to LNG pricing," Barclays said in a recent research note.

It estimated gas producers to garner USD 4 billion in revenue from higher gas prices from 2014-15 while government will rake in an additional USD 505 million from royalty, profit share, taxes and dividend.

After paying USD 360 million in additional fertiliser subsidy resulting for higher input gas cost, the government will be left with USD 101 million, it said.