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| Edited By: |Source: DNA |Updated: Jun 26, 2014, 06:10 AM IST
Much to their mutual discomfort, natural gas and Reliance have become the conjoined twins of Indian economy. It is time they are surgically separated if only to restore some sense to gas pricing.
When the last oil minister proposed a price hike, a garrulous member of Parliament criticised the move for benefiting Reliance. Had it been implemented, it would have brought a little more gain to public sector Oil and Natural Gas Corporation (ONGC) — the principal domestic gas producer and supplier.
Leaving aside the question of winners and losers, developing the natural gas industry in India is hugely important. Natural gas — globally — is fast emerging as a critical energy source. Its use leaves little environmental footprint. It is available, as the latest reports indicate, in plenty. Described as the fuel of the future by the International Energy Association (IEA), it needs nurturing. In that, pricing plays a seminal role.
Gas pricing has become as complex as the Schleswig-Holstein question in 19th century diplomacy. Otherwise, how can you have such wild pricing variations for the same commodity: gas is sold at $4.02 per unit if produced from certain wells awarded earlier. The same gas could sell at a much higher price if produced from some recently awarded wells. And if, because of the shortages, you are using imported gas — you pay $20-$21 per unit.
We are capping prices of gas produced domestically, while paying five-times more that price for imports. In effect — we are discouraging domestic production and encouraging it overseas. The result is declining domestic investment in gas assets.
There are other anomalies. If oil is discovered from a well, the crude gets import parity price. If an adjoining well or same well yields gas, the price will be determined and approved by government on the basis of one of the convoluted formulae, depending on whether the well was pre-NELP or post-NELP (new exploration and licensing policy).
At the heart of the complexity and prevarications around gas pricing are three factors: first the government’s anxiety to cap prices to keep the feedstock costs of fertiliser and power sectors; secondly, cost sharing contract under which oil and gas licences are awarded; thirdly, the unfortunate association of the natural gas industry with one company.
Its unfortunate if the government’s decision-making hinges on a single private sector company instead of serving public interest. Ever since the two Ambani brothers fought a private battle over gas pricing, all pricing issues are settled with reference to that Supreme Court verdict.
Fertiliser and power producers argue that, if gas prices go up, their production costs will rise. This is sabotaging the entire economics of costs and pricing. If using gas makes power unaffordable, then power should be generated using fuels other than gas. In our case, it should be coal. Rather than raise coal production, our policy requires domestic gas to be assuredly supplied at controlled prices ($4.02). Whereas the same power producers are using imported gas at between $18 and $21 per unit.
Not that the government is not aware of the knots it has tied itself in. Not that it does not want to free itself. Not that the way forward is unknown. The best way, some would argue, is to leave pricing to the free market. Why not go by the letter and, more importantly, spirit of NELP?
