CII for market-linked gas pricing

Recommendation supports ONGC's demand as well; co had demanded it to make Rs 40,000 crore planned investment in KG Basin viable

The Confederation of Indian Industry (CII) has recommended a market-linked pricing regime for natural gas fields yet to be developed.

This is a long-standing demand of state-owned Oil and Natural Gas Corporation (ONGC), to make its Rs 40,000-crore planned investment in the Krishna-Godavari basin viable.

In a representation to the petroleum ministry, the apex business chamber has said to build investor confidence, it is important that discovered but undeveloped gas resources are provided with the same pricing and marketing freedom as proposed to be given for future acreages under the new hydrocarbon exploration policy.

“Multi trillion cubic feet (tcf) of already discovered resources can be developed immediately over the next three to five years. Development of these resources will involve investment of $40 billion (Rs 2,73,600 crore at the current exchange rate) from exploration and production firms in India and also result in import substitution of $100-150 bn,” CII has said, in a note reviewed by Business Standard. The move will provide progressive market-based pricing to align with the risk level, will be consistent with bid offers of earlier Nelp (New Exploration and Licensing Policy) rounds, provide long-term security of supply to key consumer groups and be cheaper than imported liquefied natural gas or other alternate fuels, says CII. “Consumers will benefit as new production will replace costly LNG or liquid fuel. Weighted average cost of gas will be lower with gas price reform.”

The comments are part of a larger representation to the government in response to the draft of a new fiscal and contractual regime for awarding hydrocarbon blocks that was put up for public consultation by the petroleum ministry last November. The policy is likely to be announced before the end of the current financial year in end-March.

CII has also supported awarding of contracts under the new regime for a duration till the end of the economic life of a field, a major demand by Vedanta-owned Cairn India, which has been seeking extension of the contract for its oil and gas field in Barmer, Rajasthan.

The ministry says the proposed policy changes are at the forefront of its effort to reform the exploration and production sector and aligned with the larger intent of 'ease of doing business'. These stem from concerns over the country’s stagnant crude oil production, which has inflated the energy-hungry nation’s fuel bill to Rs 7.7 lakh crore annually, and the big decline in natural gas production.

The proposal is for a policy switch to pricing and marketing freedom for companies and a more investor-friendly revenue sharing model of development, that allows companies to indicate the revenue they will have to share with the government at different stages of production.

This is unlike the current system where companies win blocks by committing the highest investment and recover these before sharing profits with the government.

In its representation, CII has called for operationalising the proposed Open Acreage Licensing Policy without waiting for the establishment of the proposed National Data Repository. Also, sound assessment of the Minimum Works Programme proposed by companies while bidding and, continuing with the existing provision of higher weightage for technical know-how. Plus, incentivising exploration of unconventional hydrocarbons through a tax holiday and streamlining grant of environment clearances.