Contractors can pay Profit Gas in kind under NELP-V

Vol 8, PW 20 (12 Jan 05) People & Policy

Companies that produce gas from blocks awarded under NELP-V will no longer be forced to pay the governments share of Profit Gas in cash.

Instead, they will be permitted to hand over physical deliveries of gas to GAIL, acting on behalf of the government. On 4th January, oil minister Mani Shankar Aiyar confirmed that under NELP-V the government might exercise the option to take its share of Profit Gas in kind.

Replying to a specific query from this report, Aiyar said the decision to seek Profit Gas in kind and not cash would benefit upstream companies and the development of a gas market in India. He added that under NELP-V and future rounds natural gas producers would pay Profit Gas to the government every five years, not every year as they do now.

He said the main reason for the governments decision to receive Profit Gas in kind is to ensure the equitable distribution of natural gas across the country. Gas is not uniformly discovered, said Aiyar.

We are worried that in a free market regime certain regions may not receive their fair share of supplies as happens today. Aiyar said the decision to receive Profit Gas in kind would make a big contribution towards the development of a mature gas supply market in India.

Right now the only market developed is for petroleum products with pipelines criss-crossing the country, he said. This is not the case with natural gas pipeline infrastructure.

Details of the new government provision on Profit Gas are included in the model PSC for the 20 exploration blocks offered under NELP-V. Aiyar stressed that the new provision is restricted only to NELP-V and not to existing PSCs signed by gas producers ONGC, BG, Reliance, Cairn Energy and others.

But if any gas producing company approaches us with an offer to swap profit gas from cash to kind the ministry will look at it on a case-to-case basis, said Aiyar.