Govt likely to double set price of natural gas

The government is likely to double the price of natural gas sold through the administered price mechanism to $4.2 per million metric British thermal unit (mmbtu), which is equivalent to the price that Reliance Industries is getting for its K-G basin gas.

The gas price revision will add to the bottomline of the two public sector companies -- Oil and Natural Gas Corporation and Oil India Ltd -- and will also yield additional revenue for the central and state governments.

Selling gas at an administered price has resulted in huge losses for these companies. ONGC, for instance, suffered a loss of Rs 2,140 crore (Rs 21.4 billion) in 2007-08 for selling natural gas at the set price.

The central exchequer is also likely to earn revenues worth Rs 4,400 crore (Rs 44 billion) in royalty, dividend and dividend distribution tax from the price revision. Outgoing petroleum minister Murli Deora said on Saturday that deregulating fuel prices and revising natural gas prices were the ministry's priority.

The gas price revision will also generate revenues worth Rs 1,196 crore or Rs 11.96 billion (from ONGC) and Rs 178 crore or Rs 1.78 billion (from OIL), respectively, for the state governments on account of royalty, sales tax and value added tax.

At 45 million metric standard cubic metres a day (mmscmd), APM gas currently accounts for over 34 per cent of the country's 130 mmscmd gas availability (which includes the latest production from Reliance Industries' K-G basin). However, the share of APM gas in total availability has been coming down gradually.

"Though the last gas price revision is due from 2005, it is not possible to revise it with retrospective effect, as the differential price would have to be recovered from a large number of consumers. Moreover, the fertiliser subsidy has already been paid and retrospective revision would mean additional subsidy burden for the government," said an official in the ministry of Petroleum and Natural Gas.

All natural gas produced from existing fields in nominated blocks of ONGC and OIL is treated as APM gas. However, both ONGC and OIL are likely to get the freedom to sell any production from new fields in their nominated blocks at market price. This will make viable the huge investments incurred by the two companies in developing such fields.

Over a period, the government plans to link natural gas price to the market and completely do away with the APM. The purpose behind this would be to ensure greater investment in exploration and production activity in the sector.