The clauses in the Cabinet note will not make RIL eligible for any price hike before April 2014, the officials said, adding that the oil and gas behemoth may have to seek the long-pending approval for revising the present price of $4.2/unit for the gas it produces from its KG-D6 gas block, off the Andhra Pradesh shore, even after March 2014.
The Rangarajan Committee is believed to have suggested a complex pricing formula that will lead to a near doubling of natural gas price to about $8 per million British thermal unit (mBtu) compared to the current rate of $4.2 per mBtu for most of the gas produced in the country. The Petroleum Ministry has drafted a Cabinet note to implement the suggestions of the PMEAC, which may allow a gas price hike in 2013 itself, sources said.
The draft note, reviewed by NDTV Profit, says the guidelines "shall not be applicable where prices have been fixed contractually for a certain period of time till the end of such period." These prices shall also not be applicable "where the contract provides a definite formula for natural gas price indexation."
An official said RIL will not qualify if the price revision guidelines are made applicable in 2013. First, the gas price for KG-D6 was fixed for five years starting 2009. Second, the price was arrived at under a "definite formula" which was linked to crude oil prices at that point of time. So the clauses of a "certain periodicity" and "definite formula" make the company ineligible for higher prices, under the Rangarajan panel formula, in 2013 itself.
The PMEAC has proposed an average of a two-tier formula to decide the new gas price: one, the net back price of liquified natural gas (LNG) that is imported in India at wellheads of exporting countries; and two, the price for India which is the average of prevailing trading points or hubs in the US, the UK and Japan. The sources said the price effectively works out to $9/unit at the prevailing rates.
The present price of gas produced from the KG-D6 block, under a formula approved by empowered group of ministers in 2009,is $4.2/unit.
The Petroleum Ministry has proposed the Rangarajan panel-based gas pricing be applicable to all kinds of natural gas, i.e. conventional, shale gas as well as coal bed methane (CBM). Petroleum Ministry sources said the new pricing system, once approved by the Union Cabinet, will be "applicable to the entire consumer sector uniformly".
Officials further added that, prima facie, barring the gas price produced from the RIL consortium-operated KG-D6 gas block, the new pricing will be applicable to all other existing and new gas blocks. Explaining the issue, an official said that no other existing gas price has been set for a definite period of time or under any formula. Most prices are decided on a "bid-based market discovery mechanism or fixed with reference to some other prevailing gas price."
Overall, the new guidelines will benefit oil and gas explorer ONGC as the public sector firm is the biggest gas producer in the country. ONGC cumulatively produces more than 50 million units of gas every day compared to RIL's 21 million units of gas from KG-D6. Other gas producers in India (in small quantities) are Cairn India, British Gas, Essar Oil, and public sector firm Oil India.