'Free-market arms length pricing should be followed'

Prashant Modi, President and CEO of Great Eastern Energy Corporation Ltd, shares his views on the sector, future of the company and pricing issues on the backdrop of C Rangarajan Committee report

With the country awaiting the bidding of shale gas blocks, Prashant Modi, President and Chief Operating Officer of Great Eastern Energy Corporation Ltd (GEECL) is bullish about the future of hydrocarbon industry in India. Modi shares his views on the sector, future of GEECL, shale gas diversification plans and pricing issues on the backdrop of C Rangarajan committee report, in an exclusive interview with Shine Jacob. Edited Excerpts:

You are the first commercial producer of CBM in India. What is the status of your blocks at  Raniganj in West Bengal and Mannargudi in Tamil Nadu?

At Raniganj, we have already drilled 130 wells, out of the total 300. The block has already seen an investment of more than Rs 1,000 crore till now. Our production is currently 14.73 million standard cubic feet per day (mmscfd), which we would like to increase to 100 mmscfd in the next 4-5 years, with an additional investment of Rs 1,500 crore. We are going to raise it through debt and equity, the capital structure is yet to be decided. Our customers here include steel and steel-related industry and other small manufacturers in the Asansol-Durgapur belt.

Raniganj has estimated reserves of 2.35 trillion cubic feet (TCF), while at Mannargudi, as per the Directorate General of Hydrocarbons (DGH) the expected gas in place is 0.98 TCF. For exploration activities, we will be spending about Rs 100 crore there and the rest of the investments will depend on the results of those studies.

What is your take on the Rangarajan committee report?

The pricing regime suggested for future in the Rangarajan panel report introduces an elaborate system of price control. Acceptance of such pricing framework will drive away fresh investment in future.  Free pricing means market forces will decide the pricing and not any formula or government intervention.

Do you think there needs to be more clarity on the pricing of CBM, as different companies are having different prices, some charging higher than the minimum price?

People often compare our prices with the United States, they don’t see why it is low. It came down because the government encouraged E&P activities. The government did not intervene in price control. People were allowed to drill shale, when supply increased, prices fell.

In CBM and shale, royalty contract model is being followed. There is no cost recovery,  the risk is entirely ours. If I put in the money and there is no gas, it is the end of the story. My view is clear, there should be a free-market arms length pricing, as per the contract. Government has set a minimum price to ensure royalty, so that you don’t sell at a lower price to any sister concern. If we are selling higher than the approved price, we will pay royalty on the higher price.  Whatever customers want to pay, if he pays higher price viable to him, we are also gaining from it, government also gets additional the royalty and taxes. Hence, to encourage industry, you need to follow this.

With the shale gas auctions lined up, will you be keen on the sector?

Our interest will depend on the viability of the blocks and policy that the government comes out with. The draft policy that the government has come out with is royalty based, which is encouraging. Shale block has to be near a pipeline. It is unconventional, but produces like a conventional. Production is higher in the beginning and then drops. CBM is low in beginning and then rises slowly.

In the US, pipelines were already in place. If you have to make a pipeline of 100 kilo metre in advance, nobody will take that risk. If policy and blocks are right, if they are economically viable, I will surely be keen on this. 

There were issue related to your product pipeline  with the Petroleum and Natural Gas Regulatory Board (PNGRB), regarding due authorisation.  Has it affected your operations?

Ours is a 77-km long pipeline and we have invested Rs 100 crore on this to supply product to our customers in the industrial belt. The issue with PNGRB is under sub-judice. But the act of PNGRB is applied to common or contract carriers. Our dedicated pipeline is not covered under it. Hopefully, the issue will be settled soon. 

Do you have any plans to hit the capital markets in India? Will you look into conventional sources at some time?

We are already listed on the main board of the London Stock Exchange. Three-four years ago, we were thinking about getting listed here. At some point, we will have to do it, but no timeline is fixed.

As far as operations is concerned, GEECL has no plans to foray into conventional space.