The Petroleum and Natural Gas Regulatory Board (PNGRB)—the government body that regulates the refining, processing, storage, transportation, distribution, marketing, and sale of petroleum and natural gas—has made a recommendation to the government to take its share of profit gas under the production-sharing contract in kind and then auction it to companies other than the producing company.
This will create a more competitve market for gas and allow prices to be fixed by the market.
Companies bidding for oil and gas exploration blocks offer to share their production with the government after recovering their costs. This is called profit gas or profit petroleum.
“The directorate-general of hydrocarbons may be asked to perform this role on behalf of the government,” said Ajay Tyagi, PNGRB secretary, in a letter written to the petroleum secretary. “It is requested that this option may kindly be seriously considered as it would result in many entities owning the gas and thereby participating in the development of the gas pipeline projects and city gas networks.”
When contacted, Tyagi said, “This has been our view for quite some time now. In a recent communication to the ministry, we have reminded them about the same.”
PNGRB’s mandate is to protect the interests of consumers. If PNGRB’s suggestion is implemented, it will create a more competitive market for gas.
However, it will also reduce the prospects of the power and fertilizer sectors along with the Andhra Pradesh government acquiring gas at concessional prices.
The petroleum and natural gas ministry says the regulator’s suggestion is a sensible one and worth considering. However, it adds several practical aspects need to be carefully worked out. “The industry players are likely to take a cautious approach to this concept. Nevertheless it is important that for the auction concept to work, it has to be completely market driven,” said Ravi Mahajan, partner at accounting firm Ernst & Young, said.
The actual quantity of profit gas available to the government each year to market may vary as it will be a factor of costs which are incurred and the profit share percentage between the government and the developer. To overcome this, PGNRB has proposed to fix a constant level of gas which the government will market each year. And any differential to the actual quantity allocable to the government will be settled in cash.