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Business News/ Industry / Energy/  Govt reiterates decision to regulate gas marketing margins
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Govt reiterates decision to regulate gas marketing margins

Petroleum minister Dharmendra Pradhan says the govt needs to regulate the gas marketing margin, as the same has implications on govt subsidy outgo

Petroleum minister Dharmendra Pradhan. Photo: MintPremium
Petroleum minister Dharmendra Pradhan. Photo: Mint

New Delhi: The Narendra Modi-led National Democratic Alliance (NDA) government has reiterated the petroleum ministry’s decision to regulate the marketing margin for the supply of domestic gas to urea and liquefied petroleum gas (LPG) producers. Parliament was informed about the same by petroleum minister Dharmendra Pradhan on Wednesday.

Mukesh Ambani-owned Reliance Industries Ltd (RIL) has been seeking higher margins; the amount a company can charge as marketing margin plays a key role in determining the final cost of the delivered gas. RIL has been supplying about 12.5 million standard cubic metres per day (mscmd) of gas since 1 April at the provisional price of $4.2 per million British thermal units (mBtu).

The government’s recent actions, including deferring the gas price increase and its intent to move from a cost-recovery model for oil exploration and production to a revenue-sharing one, suggest it is trying to create a new hydrocarbon regulation and pricing regime.

Currently, gas marketing margins range from 11 cents to 20 cents per mBtu. RIL charges 13.5 cents per mBtu as marketing margin over and above the government-set price of $4.205 per mBtu for RIL’s Krishna-Godavari (KG) D6 block gas.

An RIL spokesperson didn’t repond to queries emailed by Mint on Wednesday.

The minister said the government has decided that it needs to regulate the gas marketing margin, as the same has implications on government subsidy outgo.

The previous United Progressive Alliance (UPA) government had tasked the Petroleum and Natural Gas Regulatory Board (PNGRB) with determining the margin for supply of domestic gas to urea and LPG producers through its independent process.

“In all other cases, the marketing margin should be decided by buyer and seller mutually and any complaints about exercise of monopoly power should be addressed by Petroleum and Natural Gas Regulatory Board (PNGRB) and/or the Competition Commission," the petroleum ministry said in a statement.

“Accordingly, Ministry of Petroleum and Natural Gas, vide letter dated 21.11.2013, has requested PNGRB to determine the marketing margin for supply of domestic gas to urea and LPG producers, through its independent process. PNGRB has intimated that the entire study on determination of marketing margin is expected to completed by December 2014," the statement added.

Mint reported on 24 March about RIL introducing several new clauses for renewing contracts with fertilizer makers. The fertilizer ministry had then said that it would increase the burden on fertilizer companies, while diluting RIL’s obligations. Among them was a proposal to charge a marketing margin of $0.135 per mBtu on gross calorific value (GCV) instead of net calorific value (NVC), which will effectively increase gas margins by 11%. Calorific value is heat value obtained from one volume unit of gas. So far, natural gas is priced based on NCV, which doesn’t take into account the latent heat of vaporisation. GCV includes all the heat released by the fuel.

Satish Chander, director general of the Fertiliser Association of India (FAI), said that the statement strengthened its case that they should be compensated for margins paid to RIL.

“We have gone to court seeking the 500 crore from the government in compensation for paying the marketing margins (to RIL) over the last five years. We were initially promised the compensation from the government, but this has not been
paid, though we are compensated for marketing margins that we pay on other gas supplies," he added.

A senior Indian Farmers Fertiliser Cooperative Ltd, requesting anonymity, said that natural gas was a national resource and that the government must decide all aspects of the deal including the marketing margins.

Utpal Bhaskar contributed to this story.

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Published: 09 Jul 2014, 11:53 PM IST
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