Rangarajan committee for deregulating natural gas sector, submits report on pricing policy

The Rangarajan Committee is reported to have come out in favour of a new formula for fixing the price of natural gas produced in the country which will lead to a near doubling of prices to around $8 billion per million British thermal units (mBtu).

According to a senior official, the six-member committee, which submitted its report to the Prime Minister's Office on December 20, has worked out a formula based on the weighted average price of natural gas in North America, Europe and Japan markets as well as imported liquefied natural gas.

Sources said that the committee favours deregulating the natural gas sector in a phased manner over the next five years.

Currently, gas produced from the Reliance Industries Ltd (RIL)-operated K-G Basin offshore field is priced at $4.2 per mBtu. Public sector giant Oil and Natural Gas Corporation (ONGC) sells gas at an even lower price as it used in power plants and fertiliser units, which sell their output at regulated prices.

The panel, headed by Prime Minister's Economic Advisory Council chairman C. Rangarajan, has also recommended that production sharing contracts with oil companies in the future should be based on the amount of oil or gas output that the company was willing to offer to the government.

Under the new system of bidding, the company that was willing to offer the highest amount of oil or gas produced from the field would get the contract.

The current provision of allowing oil companies to first recover the entire cost of exploration and production and only then share the profit with the government has been dropped.

This approach had been criticised by the Comptroller and Auditor General of India (CAG) as the government gets very little revenue in initial years of discovery of oil or gas.

Besides Rangarajan, the panel comprises former Supreme Court Judge Jagannadha Rao, Planning Commission member B. K. Chaturvedi, professor Ramprasad Sengupta, former bureaucrat J. M. Mauskar and former ONGC Videsh Ltd managing director Joeman Thomas.

The report comes at a time when Mukesh Ambanirun RIL has been at loggerheads with the petroleum ministry over the price of natural gas. The company wanted to triple the price of natural gas from the K-G Basin field but former oil minister S. Jaipal Reddy had stood his ground as the current price is fixed till April 1, 2014.

Reddy had also insisted that RIL subject itself to a CAG audit for the cost that it incurs on the gas field before clearing its investment plans.

The CAG had found serious irregularities in contracts given out by RIL for the K-G Basin field in 2007-08, when Murli Deora was at the helm and wanted to audit the accounts for 2010-11 as well.

RIL was opposed to the audit.

The CAG had recommended that the government "review in depth" the award of 10 specific contracts out of which eight were given to Aker Group of companies on the basis of a single financial bid, which led to an escalation in costs and erosion in the government's share of revenue from the giant gas field.

Under current production sharing contracts, a contractor is required to discover an arm's length price of gas by calling bids from prospective users.



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