New Delhi: India's natural gas sector growth has been constrained by curbs imposed by pricing and marketing policies of the government, a FICCI-PWC report said Wednesday.
"The gas sector in India holds tremendous potential. However, its growth is constrained due to pricing and marketing policies of the government with respect to gas produced domestically," the joint paper titled 'Rising above the sub-optimalExploring ways to find energy solutions' said.
The government not just fixes the price of domestically produced gas but also determines who it should be sold to.
Gas produced by PSUs and Reliance Industries is priced at USD 4.2 per million metric British thermal units (mmbtu), whereas gas produced from some of the blocks has been allowed to be sold at slightly higher rate.
"This has caused a sense of uncertainty in investors' minds," it said also identifying absence of market-determined pricing mechanism as a constraint.
"The government has not been able to attract investors in the exploration and production sector due to uncertainties in areas of pricing and allocation of hydrocarbon resources, complexity in granting of approvals and various clearances, interpretation of the terms of the production sharing contracts (PSCs) and other framework agreements," it said.
Indian consumers, it said, are artificially insulated from the vagaries of international pricing by the government- controlled pricing regime.
"This leads to inefficient use of energy owing to the lack of appreciation for real economic value of fuel," the paper said. "Unfortunately, the absence of free markets acts as a disincentive to investors, consequently resulting into a weakening of the supply side".
Also, infrastructure in the downstream gas market is very underdeveloped and needs a significant policy impetus to bring in the investments, it said adding attracting investments needs a more transparent and stable regulatory framework.
Economic constraints are compelling India to reduce dependency on oil and gas imports and develop capabilities in domestic hydrocarbon exploration and production.
Given the need to boost development of domestic oil and gas industry in an energy starved nation, the government needs to proactively encourage public-private partnerships for developing the oil and gas industry, it said.
"India's dream of energy security may turn into reality if the policies are aligned to meet the challenges the sector is facing," it said adding the country's oil and gas sector has untapped potential, calling for more intense exploration activities.
By 2031-32, India's import dependency on fossil fuels is likely to be between 91 and 94 percent for oil, between 40 and 50 percent for gas and between 40 and 50 percent for coal, the report said.
Such high import dependency is likely to strain India's foreign exchange reserves and balance of payments position and will result in rupee depreciation, fiscal deficits and inflation.
"To counter these challenges, the monetary policy may have to raise interest rates, which will have a negative effect on growth, investments and job creation," the study said.
First Published: Wednesday, December 19, 2012, 21:16