Oil Min proposal on gas prices rejected

The new pricing formula, would have led to prices going up from current $4.2 per million British thermal unit to about $8

Oil Ministry's proposal for an across-the-board near doubling of natural gas prices has been rejected by the Cabinet Secretariat saying a ministerial panel headed by Defence Minister A K Antony did not have powers to do so.

The Ministry had sent a draft proposal for the consideration of the Empowered Group of Ministers (EGoM) to price all domestically produced natural gas -- be of state-run ONGC or private sector Reliance Industries - as per the formula suggested by the Rangarajan Committee.

The Cabinet Secretariat returned proposal saying that the new pricing formula, which would have led to prices going up from current $4.2 per million British thermal unit to about $8, was not covered under the EGoM's terms of reference.

"As the... EGoM is mandated to consider and decide issue of commercial utilisation of gas (produced from blocks) under New Exploration Licensing Policy (NELP) and other related matters, the present proposal will not be covered by the mandate of the EGoM," the Cabinet Secretariat wrote to Oil Ministry on April 2.

The EGoM was originally constituted in 2008 to consider commercial utilisation of natural gas RIL had planned to produce from eastern offshore KG-D6.

The ministerial panel, which was headed by the then External Affairs Minister Pranab Mukherjee, decided to accord fertiliser top priority in receiving the scarce natural resources, followed by LPG plants and power plants.

This panel was different from another EGoM that too was headed by Mukherjee, which fixed the $4.2 per mmBtu price for KG-D6 gas in 2007. The Terms of Reference (ToR) of this EGoM was to decide on pricing of gas produced from NELP blocks and it ceased to exit at the end of term of UPA-1 in May 2009.

The EGoM on gas utilisation, however, was re-notified and is one of the six high-powered ministerial panels that currently exist. Its ToR is to "consider and decide issue of commercial utilisation of gas under NELP and other related matters."

Sources said this EGoM is now headed by Antony but does not have powers to decide on pricing of natural gas.

Last time price of natural gas produced by ONGC and Oil India from fields given to them on nomination basis, called the administered or APM gas, was revised in June 2010 to $4.2 per mmBtu from $1.79, by the Cabinet Committee on Economic Affairs.

The proposal of raising APM gas price was sent to CCEA even though the EGoM on gas utilisation existed that time, they said.

"In this light, this ministry may... Either forward a proposal for expanding the terms of reference of the EGoM or bring a note... For the consideration of the Cabinet Committee on Economic Affairs," the Cabinet Secretariat wrote to Oil Ministry.