Govt fixes maximum marketing margin for natural gas

New Delhi: The government on Wednesday fixed a maximum marketing margin that firms like Reliance Industries can charge on selling natural gas to fertiliser and LPG plants at Rs 200, a 12.5 percent cut from current charge of Rs 225.

"The Union Cabinet chaired by Prime Minister Narendra Modi has given its approval for determination of marketing margin for supply of domestic gas to urea and LPG producers," an official statement said here.

The new rate would be "fixed on non-discretionary basis," it said, adding the decision is likely to enhance transparency and provide an element of certainty for future investments in gas infrastructure sector.

Currently, RIL charges USD 0.135 per million British thermal unit (about Rs 225 per thousand cubic meters) as marketing margin on its eastern offshore KG-D6 gas. This is over an above the current gas selling price of USD 4.24 per mmBtu.

While RIL charges marketing margin in US dollars, the same is charged in rupee -- Rs 200 per thousand cubic meters -- by state-owned Oil and Natural Gas Corp and GAIL India Ltd.

From now on the marketing margin will be charged in rupees per thousand cubic meters with a view to insulate the consumer from currency volatality.

The Oil Ministry had in December 2013 given freedom to gas retailers including Reliance Industries Ltd (RIL) and GAIL (India) Ltd, to fix the marketing margin they want to charge on sale of natural gas to consumers other than urea manufacturing units and LPG plants.

It had decided that government needed to regulate the marketing margin for supply of domestic gas to urea and LPG producers, as the same had implications on government subsidy outgo. Both urea and LPG are subsidised.

Sector regulator Petroleum and Natural Gas Regulatory (PNGRB) was asked to suggest marketing margin for the same.

PNGRB recommended a range of Rs 150-200 per thousand cubic meters of gas (USD 0.115 per million British thermal unit) as a marketing margin for domestic gas being supplied to fertiliser and LPG plants.

"The issue of vast disparity in marketing margins was looked into by the PNGRB and the marketing margin finalised today is based on the recommendations of PNGRB," the statement said. "Future escalations in the marketing margin upto Wholesale Price Index (WPI) would be decided by the Ministry of Petroleum and Natural Gas itself."

Presently, marketing margins charged by producers and sellers of gas range from 11 cents to 20 cents per mmBtu.

While RIL charges USD 0.135 per mmBtu, state-owned GAIL charges Rs 200 per thousand cubic metres as effort money or marketing margin from consumers like fertiliser plants and power stations. This is for selling natural gas sourced from fields that Oil and Natural Gas Corp (ONGC) had got from the government on nomination basis (called APM gas).

However, a distinction has now been made in the gas produced from fields given to ONGC on nomination basis. Any gas that came into production after 2010 is being treated differently than APM gas for which the government decides the price as well as marketing margin.

But for gas from the fields of ONGC that came into production after 2010, it charges nearly double the marketing margin as it treats them as non-APM gas.

It charges a similar marketing margin for gas from western offshore fields of Panna/Mukta and Tapti.