OIL seeks revision in natural gas price

The government is considering nearly doubling the rates for natural produced from areas auctioned under NELP

Oil India Ltd (OIL) has demanded a revision in price for natural gas for state-owned firms alongside the planned hike in rates for private players like Reliance Industries, saying that the current margins are small.

"Our cost of production of natural gas from the nominated fields is increasing on sustained basis. It is estimated that our cost of production of natural gas during the current financial year will be about $3.06 per million British thermal unit (as against the selling price of $4.2)," OIL Director (Finance) T K Ananth Kumar wrote to Oil Ministry.

The price paid to OIL and Oil and Natural Gas Corp (ONGC) is inclusive of royalty they have to pay on producing the gas to fields given to them on nominated basis.

The rates of gas they produce, called the administered or APM gas, were last revised in June 2010 to $4.2 per mmBtu from $1.79.

"At current price of $4.2/MMBtu, this will leave only a small margin for us, after adjusting for the corporte taxes," he wrote on May 9.

Stating that OIL Has drawn capital investment plans of over Rs 19,000 crore in the 12th Five Year Plan period ending March 31, 2017, he said the increasing investments requirement that the companies should be able to generate enough internal resources to fund them.

The government is considering nearly doubling the rates for natural produced from areas auctioned under New Exploration Licensing Policy (NELP) as per the Rangarajan Committee report. This would mean that companies like RIL would get about $8 per mmBtu for gas as compared to current $4.2.

APM price applies to fields given to ONGC and OIL on nomination basis prior to advent of NELP.

"I wish to bring to your kind notice that our of the total production of 40.86 billion cubic meters of natural gas in the country during the year 2012-13, 26.19 bcm was produced by ONGC and OIL, which is about 64% of the total gas production in the country," he said.

While the entire sale of natural gas by OIL is at the current APM gas price of $4.2, about 90% of ONGC's gas sale is also at APM rates.

He said the Rangarajan panel has observed that the gas price in the country can incentivise investment in the upstream sector so has to help raise domestic output.

Though the panel had recommended a hike in price of all natural gas produced in the country, the government was considering revision in rates only for NELP gas.

"It is also pertinent to note that a substantial part (about 50%) of the incremental revenue to ONGC and OIL due to revision in the price of APM gas will flow back to the government on account of increased royalty, corporate tax, higher dividend payout and other applicable taxes," he added.