CII in support of ONGC's demand for market pricing of natural gas from KG Basin fields

The demand is being made so as to make ONGC's Rs 40,000 cr planned investments in the Krishna Godavari Basin viable

The Confederation of Indian Industry (CII) has recommended market-linked pricing for natural gas fields, which are discovered but yet to be developed -- a long-standing demand of the state-owned Oil and Natural Gas Corporation (ONGC) to make its Rs 40,000 crore planned investments in the Krishna Godavari Basin viable.

In a representation to the petroleum ministry, the apex industry chamber has argued that in order to build investor confidence, it is important that the existing undeveloped discovered gas resources are also provided with pricing and marketing freedom as proposed to be provided to future acreages under the new hydrocarbon exploration policy.

"Multi Trillion Cubic Feet (tcf) already discovered resources can be developed immediately over next 3-5 years. Development of these resources will involve investments of around $40 billion from exploration and production companies in India and also result in import substitution of $100-150 billion," CII has said in a note reviewed by Business Standard.

The move will provide progressive market-based pricing of gas to align with the risk level, will be consistent with bid offer of earlier NELP rounds, provide long-term security of supply to key consumer groups and the supply will be cheaper than imported LNG or other alternate fuels, according to CII. "The 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 chamber said.

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

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

According to the oil ministry, the proposed policy changes are at the forefront of its efforts to reform the exploration and production (E&P) sector and are aligned with the larger intent of "ease of doing business". The basic idea stems from the concerns over the country's stagnant crude oil production -- which has inflated the energy-hungry nation's fuel bill to a massive $112 billion annually - and the huge decline in natural gas production.

The new policy proposes a switch towards 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 them before sharing profits with the government.

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