Gas firms gain as government approves new gas pricing policy

Shares of two gas exploration firms rose by 2.98% to 5.48% at 10:10 IST on BSE as the Cabinet Committee of Economic Affairs, chaired by the Prime Minister Narendra Modi, on Saturday, 18 October 2014, approved the new domestic gas pricing policy.

Meanwhile, the BSE Sensex was up 307.99 points or 1.18% at 26,416.52.

ONGC (up 5.48%) and Oil India (up 2.98%) gained.

However, private explorer, Reliance Industries (RIL) fell 0.13% to Rs 936.90 as the new gas price will not be applicable to RIL's KG-D6 production because the company is in arbitration with the government.

As per the formulation approved by the Cabinet Committee of Economic Affairs (CCEA), upward revision in gas prices will be approximately 75% less as compared to the price arrived at using Rangarajan formula. The periodicity of gas prices determination/notification shall be half yearly. The price and volume data used for calculation of applicable price shall be the trailing four quarter data with one quarter lag. The first price would be determined on the basis of price prevailing between 1 July 2013 and 30 June 2014. This price would come into effect from 1 November 2014 and would be valid till 31 March 2015. Thereafter, it would be revised for the period 1 April 2015 to 30 September 2015 on the basis of prices prevalent between 1 January 2014 and 31 December 2014, i.e., with the lag of a quarter and so on. The prices would be announced 15 days in advance of the half year, for which it is applicable.

The Committee also recommended applicability of the modified approach prospectively and to apply it uniformly to all sectors of the economy, along with prevailing gas allocation policy of the Government. Approximately 80% of the additional revenue due to revision in gas price will go to the Government companies. The Government will get additional revenue of approximately Rs 3800 crore per annum on account of higher royalty, higher profit petroleum and higher taxes.

The matter relating to cost recovery on account of shortfall in envisaged production from D1, D3 discoveries of Block KG-DWN-98-3 is under arbitration. Hence the operator would be paid the earlier price of $4.2 per metric million british thermal unit (MMBTU) till the shortfall quantity of gas is made good. It is proposed that the difference between the revised price and the present price ($4.2 per million BTU) would be credited to the gas pool account maintained by GAIL and whether the amount so collected is payable or not, to the contractors of this Block, would be dependent on the outcome of the award of pending arbitration and any attendant legal proceedings.

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