Natural gas pricing issue invokes PMO's attention

The Prime Minister's Office (PMO) has sought to know the latest details on the gas pricing controversy from the petroleum ministry. According to sources in the PMO, its director V. Sheshadari wrote a letter to Petroleum Secretary Saurabh Chandra following instructions from Pulok Chatterjee, Principal Secretary in the PMO, seeking details of the issue.

The PMO's action comes after the Election Commission last month asked the oil ministry to defer the implementation of the gas price hike, which was scheduled to take effect from April 1, until the code of conduct for the ongoing Lok Sabha elections was in place.

The UPA government has said that the new gas pricing formula would help increase domestic gas production. Gas producers have echoed this view. But Arun Jaitley, the Bharatiya Janata Party leader in the Rajya Sabha, has said that if the BJP came to power after the elections, it will revise the gas pricing formula. The Cabinet Committee on Economic Affairs had accepted the formula suggested by a panel led by
C. Rangarajan, head of the Prime Minister's Economic Advisory Council, on June 27 last year. The formula links the domestic gas price with international benchmarks and would nearly double the price of the fuel.

Sources say the PMO wants to understand the various reports coming in regarding the implications of the hike in gas prices on the fertiliser sector. The fertiliser sector argues that, under the new pricing regime, gas producers are asking for contracting the fuel under net calorific value rather than the existing gross calorific value, which makes the gas 10 per cent more expensive.

Sources say the PMO is also worried on the impact of the decision to defer the price hike on foreign investors. BP Plc and Niko Resources, partners of Reliance Industries, in the controversial KG-D6 basin, have moved arbitration. The PMO also wanted to take stock of the CCEA decision on December 19 when Reliance was asked to provide a bank guarantee equivalent to the incremental revenue it would get from the new price. Both BP and Niko filed their notices of arbitration on March 24. The government is disputing Reliance's claim that the drop in production from D1 & D3 fields of the KG D6 basin is because of geological challenges.