Parl panel flays govt decision to hike natural gas price

The panel also said Reliance Industries should supply the quantity it had committed but failed to deliver in the past three years at the old rate of USD 4.2.

Updated: Aug 07, 2013, 20:19 PM IST

New Delhi: In a scathing attack on the controversial decision to double natural gas prices, a Parliamentary panel on Wednesday accused the government of not doing due diligence and said Reliance Industries should deliver its shortfall in production of the fuel at the old rate.

The report of the Standing Committee on Finance, headed by BJP leader Yashwant Sinha, was tabled in Parliament today with dissenting notes from four MPs, including Sanjay Nirupam of Congress, Y P Trivedi of NCP and Naresh Agrawal of SP.

The government had in late June adopted the Rangarajan formula to price gas at an average of imported LNG costs and international hub rates, which would double the rate to USD 8.4 per million British thermal units from April 2014.

"No diligence was done before arriving at the decision to revise gas price. Neither was any cost or impact study done," it said, suggesting that there should be a cap or upper limit on the price instead of leaving it open.

The panel also said Reliance Industries should supply the quantity it had committed but failed to deliver in the past three years at the old rate of USD 4.2. The company operates the KG-D6 gas field off the east coast.

"The government must ensure that the contractor responsible for delivering the major chunk of gas from KG-D6 gas field supplies the shortfall he still owes as per the agreement, at the old rate of USD 4.2 per mmBtu, rather than getting the benefit of the new price for previous commitments," it said.

Except for the first year, KG-D6 output has fallen short of target since fiscal 2010-11. Against the target of 62.1 million standard cubic metres per day in 2010-11, RIL produced 55.89 mmscmd. In the following year, it produced 42.65 mmscmd compared with a target of 70.38 mmscmd.

In his dissent note, Nirupam alleged the report was adopted in undue haste and gave point-by-point rebuttals to observations and comments in the report. He said Rs 120,000 crore subsidy will need to be paid for using imported gas (LNG) as domestic production has stagnated.

He ridiculed the panel for attacking the government for not considering the views of ministries, power companies and industry before arriving at its decision, saying the committee itself did not follow this policy.

Naresh Agrawal said "certain vested interests are now arguing that the function of approval by government (to gas price) should be used by it to fix low gas prices...That is the subversion of a signed contracted entered into by the government of India.

"Government does not have the authority to fix or administer oil and gas prices under NELP," he said.

Trivedi wanted people involved in the oil and gas business and the pricing decision to depose before the committee.

Dharmendra Yadav (SP), in his dissent note, said the country needs to formulate a policy to increase domestic production and reduce dependency on imports.

The panel said there should be a cap on the suggested price of gas under the formula.

"It cannot be the case that gas producers will be allowed to reap unlimited gains in the event of upswing in global prices at the expense of core sectors of the economy," according to the panel's report.

Last fiscal, gas production of 27 mmscmd at KG-D6 was way short of the target of 86.73 mmscmd. Currently, it produces 14.01 mmscmd, as opposed to a target of over 86 mmscmd.

While RIL says the drop in production is because the reservoir hasn't behaved as predicted and due to geological complexities, the oil ministry feels the company did not drill all of its committed wells.

The Parliamentary panel recommended that the government undertake a thorough impact study of gas pricing on various sectors of the economy, particularly power and fertiliser.

"The quantum of subsidy required to compensate these sectors should be precisely arrived at over the medium term," the panel said.

It asked the government to review its decision and come out with fresh pricing that is more "balanced and holistic and closely related to the audited cost of production and a reasonable return on the capital invested."