Centre set to raise price of gas sold by ONGC and Oil India

Centre set to raise price of gas sold by ONGC and Oil India

New Delhi: After capping the price of gas produced from the Krishna-Godavri basin at $4.20 (Rs170.1) per million metric British thermal units (mBtu), the government is now proposing to raise the price of gas currently available under administered prices, which is priced at $1.90 per mBtu.

Of the 90 million standard cubic metres per day (mscmd) of gas available in the country, around 53mscmd of gas is available at APM price.

The entire gas produced under (administered price mechanism) APM is produced by government-owned companies Oil and Natural Gas Corp. Ltd (ONGC) and Oil India Ltd (OIL).

“We are selling dirt cheap gas," said R.S. Sharma, chairman and managing director, ONGC. “We have been asking the government to increase the price of gas for a long time. It is a fair and equitable thing for us to ask as even the costs of operations have gone up phenomenally."

A government official, who did not wish to be identified, confirmed the development. “The price hike is important in order to increase the gas production from the APM fields as they require fresh investment," he said. It is unclear what the new price will be.

While any increase in prices would stem the losses for ONGC and OIL, it would also push up fuel costs to the sensitive power and fertilizer sectors, putting pressure on them to pass it on to consumers. Of the overall gas availability in the country, the share of the power and fertilizer sectors is 40% and 29%, respectively.

The government rationale in seeking to revise the APM gas price stems from the high cost of gas production, which makes it an unviable proposition for oil public sector units. This issue was discussed at a Wednesday meeting of the empowered group of ministers (eGoM) on gas pricing.

The petroleum ministry informed the eGoM that they may shortly submit a note for the approval of the cabinet for upward revision of APM prices. Of the 53mscmd of APM gas produced in the country, around 48mscmd is produced by ONGC and 5mscmd by OIL from the fields nominated to them by the government. ONGC suffered losses of Rs600 crore in 2006-07 in its gas business. “Any increase in the APM gas prices will have a negative impact on the power sector. In fact, for every $1/unit increase in the cost of gas, the electricity costs will go up by 34 paise per unit," said Shubhranshu Patnaik, an executive director at audit firm PricewaterhouseCoopers.

Said a chief executive at a leading fertilizer manufacturing firm, who did not wish to be identified: “APM gas is only provided to sectors that receive subsidies from the government. Under the present subsidy regime, increased gas prices should worry the department of fertilizers more than the manufacturers since the increase will be passed on to the government as higher subsidy burden."

“On an average, the APM gas costs $3/mBtu at delivery," said a senior official of the Fertiliser Association of India (FAI) who also did not wish to be identified. The demand for gas from fertilizer and power units is expected to grow substantially, with the fertilizer sector requiring 76.259mscmd and the power sector requirement pegged at around 89mmscmd of gas by 2012.

Separately, within days of approving $4.20 price formula for gas to be produced by Reliance Industries Ltd, the government said on Friday that it will ask the company to prioritise fuel sales to fertilizer plants, city gas and existing power plants.

“Government is well within its right to fix sectoral priorities keeping in mind the overall national interest. The eGOM will in future meetings decide on which sectors should be given priority in allocation," said petroleum secretary M.S. Srinivasan, adding that fertilizer plants running below capacity and on expensive alternative fuels should be given the first right.


(PTI contributed to this story.)