New Delhi: The Union law ministry has said gas prices should be determined by the ministerial panel looking into the issue rather than a statutory agency such as the Petroleum and Natural Gas Regulatory Body (PNGRB).
This would effectively mean the government continues to be the sole decision-making authority on the contentious demand by producers such as Reliance Industries Ltd (RIL) to raise the price of gas. RIL pumps gas from the D6 block of the Krishna-Godavari (KG) basin and has asked the government to link the price of gas to market rates. It has sought a threefold increase in rates.
The empowered group of ministers (eGoM) headed by finance minister Pranab Mukherjee had asked the oil ministry to “suggest an appropriate regulatory authority to aid and advise eGoM on the issue”, and thereafter referred the issue to attorney general Goolam E. Vahanvati for advice on whether PNGRB could be asked to determine the price. Mint had reported this on 29 March. Vahanvati told the oil ministry in a 16 May legal opinion that the power to discover the market price should not be delegated to PNGRB. Mint has reviewed a copy of the attorney general’s advice.
“Reference to the regulatory authority is not compulsory but discretionary. In context of the fact that the matter is being considered by an eGoM, I do not consider it appropriate that this aspect should be referred to a regulator at this stage,” his opinion said.
PNGRB, which was created by an act of Parliament as an independent regulator, does not have the power to determine the price formula, he said.
“In order for the central government to be able to do so (to ask PNGRB to discover the market price), suitable amendments have to be carried out in the Petroleum and Natural Gas Regulatory Board Act, 2006, and eGoM will then have to specifically delegate its powers by way of resolution,” he added.
A senior PNGRB official, who did not want to be identified, concurred with this. Since the government owns the gas and allocates the fuel among various downstream sectors, it is well within its rights to determine pricing. “Moreover, PNGRB has not been notified for the job, so we cannot regulate pricing until that happens,” he said.
PNGRB oversees transportation tariffs and other costs of petroleum commodities related to refining, processing, storage, transportation, distribution, marketing and sale.
An email query sent to an RIL spokesperson on Monday remained unanswered at the time of going to press.
The government’s stance could perhaps be an indicator that it does not want to lose control over key decision-making, said Dipesh Dipu, director of the consulting practice at Deloitte Touche Tohmatsu India Pvt. Ltd.
“Considering the fact that there have been allegations in the past about natural resources being given away cheaply, the government would want to retain control to ensure it has the power to reconsider any decision in future,” he said.
The opinion had been sought after a plea by RIL to increase prices, which had been fixed in 2009 for a period of five years, from a basic cost of $4.2 per million British thermal unit (mmBtu) to $14.2 per mmBtu.
RIL started supplying gas from its D6 fields in the KG basin in April 2009 to power and fertilizer firms at a base price of $4.2 (Rs 230) per mmBtu. The supply contracts end in 2014, after which they have to be renegotiated.
Vahanvati said there was no legal hurdle in the way of eGoM itself revising the price formula. Mint had reported on 2 April, citing government documents, that a price revision to $14.2 per mmBtu will indirectly cost the government around $8 billion.