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Election Commission puts spanner in gas price hike

Tuesday, 25 March 2014 - 7:15am IST | Place: New DelhiMumbai | Agency: dna

Seeks deferment of proposal till elections are over; RIL, ONGC stocks may be hit

On the eve of the petition on gas price hike being taken up for hearing in the Supreme Court on Tuesday, the Election Commission has sought deferment of the price hike till elections are over.

After deliberating gas pricing once again on Monday and taking into account government's version, the EC decided to defer a decision on the contentious issue as the matter was pending in the SC, highly placed sources told dna.

A SC bench, comprising of justices J Chelameswar and Kurian Joseph is hearing combined public interest litigations filed separately by CPI MP Gurudas Dasgupta and NGO Common Cause that have sought imposition of penalty on private companies for failure in adhering to their commitments in generating gas from KG Basin and colluding with the government for huge gains.

The matter is in final stages of hearing in the apex court and arguments will be heard on Tuesday. But a decision is not expected to be arrived very soon.

Making gas pricing an electoral issue, Aam Aadmi Party leader Arvind Kejriwal had approached the EC on Thursday seeking its intervention not to approve the revised gas pricing to $8.3 per mmBtu from April 1, nearly double the current price. His move had come after the government approached the EC seeking approval for the hike from April 1.

In his letter to the EC, Kejriwal had argued that the hike will accrue windfall gains for Reliance Industries that was in violation to the electoral norms. During his short stint as Delhi's chief minister, he had also lodged FIRs against Ambani, Reliance Industries Ltd (RIL), petroleum minister M Veerappa Moily, former minister Murli Deora and former director general (hydrocarbons) V K Sibal.

RIL had said in a statement that the EC should be kept away from the politics of disinformation.

Refraining from naming AAP, the RIL stakeholders' communication said, "A political party has written to the EC to keep on hold a bona-fide decision of the Union Cabinet on gas pricing. The party has a history of ill-informed diatribe. It is thus important to examine established conventions in this regard."

"When the model code of conduct (MCC) is in force, the government in power cannot take any new decision. New decisions mean undue benefit to the ruling political party. By implication, decisions already taken by the state or the central government continue to be implemented."the statement added.

RIL stock, which gained round 2% on local bourses, closing above the psychological Rs 900 per share level on Monday, is likely to decline on Tuesday sharply.

The EC directive came as a shock for the upstream companies that had been eagerly looking forward to price hike from April 1. "It is an unfortunate decision and would be negative for both RIL and ONGC. There was no necessity for EC to defer the decision as it had been notified much before model code of conduct. This may actually benefit AAP and left parties. EC's job is to see that no benefit accrues for any particular party. This will delay the entire process of gas price hike implementation and would also impact investment sentiment," said S P Tulsian, an independent stock expert tracking RIL.

Ambareesh Baliga, managing partner - global wealth management, Edelweiss Financial Services, said the deferment was on expected lines as the elections are around the corner.

"It will be mild negative for the stock, and will lead to a 3-4% correction," said Baliga, adding that the gas price hike would be implemented even if it is delayed.

A new pricing regime was to be implemented from next month for all private and public sector natural gas producers under which rates were to double from current $4.2/ mmBtu. Though the decision to revise gas prices from April 1, 2014, was first taken in June 2013 and notified on January 10 this year, the oil ministry had approached EC for permission to announce the new price.

The petition at the apex court has meanwhile questioned the gas pricing formula suggested by Rangarajan Committee and approved by a cabinet panel in June last year that is likely to double gas prices from current $4.2 a unit. It also accuses oil minister Veerappa Moily of helping Mukesh Ambani's RIL, and seeks the cancellation of Reliance' contract to produce gas in the KG-D6 basin, off the Andhra Pradesh coast.

The petition will resume hearing in the SC from Tuesday, confirmed RIL spokesperson Tushar Pania.

The news reports on RIL's getting 11% higher gas margins over and above the revised gas price from fertiliers customers through new gas sales and purchase agreement (GSPA) seem to have led to run-up in the stock on Monday. RIL has shared a new draft GSPA with fertiliser makers, in which it has proposed a marketing margin of $0.135/mmBtu to be levied on gross calorific value (GCV) instead of net calorific value (NCV) for its gas supplies from KGD6, claimed Fertlisers Association of India.

In a letter dated March 20 to the petroleum ministry, a copy of which is available with dna, Union fertiliser secretary Satish Chandra has raised several concerns regarding the new GSPA. "RIL has surprisingly made substantial amendments in the draft GSPA. All the changes made by RIL result into substantial dilution of sellers obligations and put onerous responsibilities and additional financial burden on the buyers," Chandra said.

Fertliser manufacturers' main concerns include reduction in the tenure of the contract from five years to one quarter, using GCV for gas pricing formula instead of NCV, restricting scope of GSPA to only three gas fields instead of entire KG D6 block, gas supply pressure, etc.

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