New Delhi: The government will soon explain to a parliamentary standing committee why natural gas from domestic sources sold to fertilizer, power, steel and refining companies is being priced in dollars and not rupees.

The issue was raised by Gopinath Munde, a leader of the opposition Bharatiya Janata Party (BJP) who heads the parliamentary standing committee on fertilizers.

Munde raised this question at a 21 November meeting of the standing committee, said two senior government officials who were present. They did not wish to be identified as deliberations in standing committee meetings are confidential.

Munde said that since the working of the standing committee was supposed to remain confidential, he was not in a position to comment on the issue.

One of the officials said that although senior fertilizer and oil ministry officials, including fertilizer secretary Sudhir Mittal, tried to explain, Munde was not satisfied with their responses and asked the two ministries to furnish a written response.

This person said that the oil ministry is in the process of preparing a response, which would be forwarded to the fertilizer ministry for its comments, before it is put up before the standing committee.

He said that whenever the rupee falls against the dollar, gas suppliers gain “huge profits."

“This is a complex issue. Frankly, we ourselves were not convinced by our responses," the second official said.

Downstream users including fertilizer, power, steel and refining companies typically get gas under the administered pricing mechanism (APM) and that from the Krishna-Godavari D6 gas fields of Reliance Industries Ltd (RIL) at $4.2 per million British thermal units (mmBtu).

Oil and Natural Gas Corp. (ONGC) C-series gas is sold at $5.25 per mmBtu while gas from the Panna-Mukta-Tapti (PMT) fields is priced slightly higher at $5.6-5.7 per mmBtu.

An ONGC spokesperson offered no comment. An email query sent late on Monday to an RIL spokesperson, remained unanswered.

To be sure, to meet gas supply shortfalls, companies also buy gas from the international open spot market as well as international sources on a long-contract basis.

One explanation could be that India is heavily import dependent on the commodity, said Kalpana Jain, senior director at Deloitte Touche Tohmatsu India Pvt. Ltd.

“A bulk of the gas requirement is imported. The price determination in dollar terms represents the combined price of imported and domestic gas," she said. “Having said that, theoretically, yes, one can ask why domestic gas is priced in dollars."

A dollar-determinated price mechanism was put in place to attract international investments, said Sunjoy Joshi, a former oil ministry official and director at the RIL-funded think tank Observer Research Foundation.

“All the equipment required for gas exploration was being bought or hired from the international market at dollar rates. So, it was only logical for the gas price to be in dollars," he said.

He echoed Jain’s view that the pricing mechanism is essentially a function of the degree of import dependence for a commodity.

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