Buyer's regret
The Centre is crying foul over its Panna-Mukta-Tapti deal.
With crude oil prices kissing the three-figure mark, several oil and gas rich countries are now busy renegotiating terms with their contractors, asking for more share than before. Back home, it’s a little different. Late last month, the government threatened to withdraw the country’s second-largest gas producer’s freedom to market gas.
The contract with the government does not allow the Panna-Mukta-Tapti (PMT) consortium to market gas; government is the sole buyer. It was by a mutual agreement three years ago that PMT was allowed to sell to others.
And, while BG—it owns 30 per cent of PMT, Reliance Industries and ONGC are the other two partners who own 30 per cent and 40 per cent, respectively—claims that it was in perpetuity, the government thinks otherwise. Says a government official: “Partial marketing freedom was valid for only three years and that gets over in March 2008.”
Barring PMT from selling gas to private buyers will hurt, since BG retails city gas in Gujarat, with 160,000 consumers in Ankleshwar, Bharuch and Surat. For Reliance, which sources gas for its petrochem unit, IPCL, alternate supplies will be easier to come by, though there could be a delay in making the switch—gas from its mega find off the coast of Andhra Pradesh is expected to flow later next year.
There is more to the flaming issue. The government has accused the consortium of selling more gas than it was allowed to in the open market in the last one year—thus, denying it cheap gas that would have powered the power and fertilizer units that get the government to pick up the gas bill. When contacted, BG and RIL refused to comment, while ONGC’s Chairman R. S. Sharma pointed out that his company’s share of gas from the field was being sold with government’s approval.
The seeds of the controversy were sown by government’s populist demands. It partly gave up its marketing rights in 2005 since it could not afford the price of gas determined by the contract—a little under twice the then prevailing price of $3.11 per MMBTU, where the entire sales were to power and fertilizer units. As a compromise, it allowed the consortium to market a portion of the gas in the open market at market-determined prices. The deal was simple: for the first year, 2005-06, government, through its nominee, GAIL, would pick up 6 MMSCMD (million standard cubic metres) of gas out of the then prevailing production of around 10.8 MMSCMD at a price of $3.86 per MMBTU (million British thermal units). During this period, the consortium netted a higher market price of $4.08 per MMBTU.
For the next two years, another deal kicked in—the consortium could sell only 4.8 MMSCMD in the open market; the rest would be mopped up by GAIL. During this period (which is still operational and expires on March 31, 2008), GAIL would buy gas at $ 4.75 per MMBTU. While GAIL continues to purchase gas at this price, the consortium is selling gas in the open market at the lower price of $4.08 per MMBTU, defeating the very purpose behind offering partial marketing freedom.
There is little the government can do about the price, but it has told the consortium that it has sold gas well beyond its allowance. “In the open market, they continue to sell as much as 8.9 MMSCMD as against their quota of 4.8 MMSCMD,” says an official with the Directorate General of Hydrocarbons, which monitors the gas sales in the market. This was possible in the first place as production rose 30 per cent to a little over 14 MMSCMD of gas.
While the fight goes on, one unintended (then again, perhaps not) beneficiary may be Reliance, which will now find it easier to justify higher price for its own gas from the KG basin.
