Gas pricing policy to be reviewed, uncertainties removed: FM

Majority of domestically produced natural gas is priced at $4.2 per mn British thermal unit, one-third of the imported cost

Against the backdrop of oil firms like BP Plc complaining of artificially low gas rates in the country impeding investments, Finance Minister P Chidambaram today said the pricing policy will be reviewed and uncertainties removed.

Majority of the domestically produced natural gas is priced at $4.2 per million British thermal unit, one-third of the imported cost. Domestic and international firms have been saying that this cost is unremunerative for undertaking exploration in deeper and risky basins.

Chidambaram, presenting the Budget for 2013-14, said: "The natural gas pricing policy will be reviewed and uncertainties regarding pricing will be removed."

A government appointed committee headed by C Rangarajan has suggested pricing domestically produced gas at an average of international hub prices and stripped down cost of imported liquid gas (LNG).

Currently, this average comes to about $8-8.5 per mmBtu, half-way meeting expectations of companies of being allowed to charged a price equivalent to imported liquefied natural gas (LNG).

Oil Minister M Veerappa Moily has already accepted the recommendations and is moving Cabinet for a formal approval.

Chidambaram also said the oil and gas exploration policy will be reviewed to move from profit sharing to revenue sharing contracts.

The cost-recovery model of the New Exploration Licensing Policy (NELP), which allows operators to recover all their investment in successful as well as unsuccessful wells from sale of oil and gas before sharing profits with the government, had come in for strong criticism from official auditor CAG.

CAG felt the cost recovery model incentivises firms to keep raising investment to postpone government's profits.

To put an end to the controversy, the Rangarajan committee has suggested moving to a revenue sharing model where companies will have to bid upfront stating the part of the production they will share with the government from the very first day.

The Finance Minister also said NELP blocks that were awarded but are stalled for defence and other clearances will be cleared soon.

Commenting on the announcements, BP India Head Sashi Mukundan said: "We welcome the focus on regulatory and pricing clarity for the exploration and production industry announced in the budget today.

"A key next step should be the transition of prices of domestic natural gas to import parity in the next 3 years, similar to the diesel price reforms. To me, these measures will help build a sustainable gas market in the country."

Chidambaram also said a policy to encourage exploration and production of shale gas will be announced.