Power and fertiliser firms may have to pay up to Rs 3,400 crore extra on natural gas they buy from domestic producers as the government has priced the fuel in US dollars, which has appreciated sharply against the Indian rupee.
With rupee falling below 52 against the dollar, power and fertiliser companies are paying about Rs 10 crore a day to Reliance Industries (RIL) and state-owned Oil and Natural Gas Corp (ONGC) on the 90 million standard cubic metres per day (mmscmd) of natural gas they buy for producing electricity and urea.
Industry sources said domestic gas price continues at $4.2 per million British thermal, unit but rupee has dropped below Rs 52 per dollar from less than Rs 45 few months ago.
RIL, on annualised basis, will gain Rs 1,584 crore on reduced output of 41 mmscmd from its flagging KG-D6 fields because of the falling rupee. Similarly, ONGC stands to gain Rs 1,826 crore in the full year on its 52 mmscmd of gas.
In May last year, oil ministry had decided that gas produced by ONGC and Oil India should be priced in US dollars when rates were revised to $3.818 per mmBtu ($4.2 per mmBtu after including royalty), from Rs 3,200 per thousand cubic metres (equivalent to $1.79 per mmBtu).
Sources said the burden of the windfall that ONGC and RIL are getting is actually being borne by consumers who have to shell out more as electricity rates and fertiliser costs.
This situation as well as a scenario where the rupee hardening hurting ONGC revenues could have been avoided if domestic gas was priced at the equivalent of $3.818 per mmBtu in rupees, as had been the past practice.
While KG-D6 gas could not have been priced in rupees, as the contract for the field explicitly provides for pricing of the fuel in US dollars, the additional burden on power and fertiliser firms could have been avoided if the proposal from RIL of having a fixed rupee-dollar ratio had been accepted.
RIL, sources said, had in 2007 proposed that the exchange rate could be fixed at Rs 45 to a US dollar while deciding on KG-D6 price. The rupee was trading at around 43 to a dollar at that time and so it was rejected.
It was stated that prevailing exchange rates would be used for the purpose of conversion of the $4.2 per mmBtu price fixed for KG-D6 gas into rupees.
Incidentally, by the time RIL began gas production in April 2009, the rupee had weakened to Rs 45 per dollar.
Sources said that besides the gas price, the $0.11 per mmBtu marketing margin charged by state-owned GAIL India for the effort it makes in selling gas produced by ONGC, too, is US dollar-linked.