No price pooling for natural resources

In a landmark decision on the mechanism of pooling of prices for scarce resources in the country, an inter-ministerial committee has rejected the proposal of pooling of domestic natural gas prices with imported LNG.

Power, steel and petrochemical projects that were banking on the supply of pooled gas will become unviable.

In pooling, an average price of domestic and imported fuel is used as the selling price.

The committee said that pooling of gas prices will increase the cost of domestic gas for the fertiliser sector, which currently gets the fuel at a subsidised rate.

The recommendation will impact the proposal of pooling of coal prices in the country as well.

In an interview with DNA in April, NTPC chairman Arup Roy Choudhary said India would not be able to absorb the cost of power produced through imported LNG.

NTPC had planned an LNG-based plant to supply power to southern states.

“Now the cost of power from imported LNG has come to such a level that no one is ready to buy that,” Choudhary had said.
There is a large price differential between the domestic and imported gas currently.

Domestic gas prices, including those sold by Reliance Industries from its D6 block in the Krishna Godavari Basin off the Bay of Bengal, are at $4.2 to $5.5 per million metric British Thermal unit, or mmBtu (excluding transportation charges and taxes).

That’s much lower than imported LNG, which is available at $10-$14 per mmBtu.

“The committee does not recommend pooling mechanism for natural gas at the overall level, nor does it recommend a price pooling on a sectoral basis, except where that may be found to be the best workable option,” said the report.

The committee has opted for preferential allotment on a scheme of priority as a basis for allocating natural gas.

The fertiliser and the power sectors have been given the first priority. However, the committee estimates that the fertiliser sector will have to meet 21-22% of its total requirement through imported LNG, while the power sector will have to arrange up to 25.27% of its requirement through imports.

The report said all the users including the city gas distribution (CGD) and the non-priority sectors (petrochemicals, sponge and steel) would have to source bulk of their requirement from imported LNG.

In this fiscal, about 73% of their requirement would have to be met through imports. The proportion of imported gas is likely to go up to 80% for these sectors by 2016-17.

The non-priority sectors currently consume about 18.4 mmscmd of domestic gas and only 5 mmscmd is being set aside for these users.