D6 gas price could be hostage to new gas pricing policy

Vol 11, PW 7 (09 Aug 07) People & Policy

On a serious note, uncertainty continues over when the government will approve Mukesh Ambani-owned Reliance’s pricing formula for D6 gas.

Worse, signs are emerging that government approval might depend on the formulation of a new policy on â€کgas pricing and utilisation’. Cabinet secretary KM Chandrashekar is believed to have directed the oil ministry to draw up this policy following a meeting of the Committee of Secretaries on July 10th.

This is the same meeting in which ONGC chairman RS Sharma and Reliance chairman Mukesh Ambani delivered separate presentations arguing for a market-determined gas price. Last week bureaucrats from the gas and exploration divisions of the oil ministry began work to draw up the new gas pricing policy.

Why should D6 gas price depend on a non-existent policy Because Article 21.1 of the PSC says: “Any proposal by the contractor relating to discovery and production of natural gas from the contract area shall be made in the context of the government’s policy for the utilisation of natural gas and shall take into account the objectives of the government to develop its resources in the most efficient manner and to promote conservation measures.â€‌ Article 21.1, however, appears to contradict Article 21.3, which says: “For the purposes of sales in the domestic market in India pursuant to this Article 21, the contractor shall have freedom to market the gas.

â€‌ D6 gas, it would appear, is caught between these two seemingly opposite positions that directly impact the price. Still, oil ministry bureaucrats are not unduly worried.

“The D6 pricing formula might be decided after the policy is drawn up,â€‌ says a ministry source. “But no view has yet been taken.

â€‌ When will the new â€کgas pricing and utilisation’ policy be ready According to ministry sources, in around a month’s time “In that sense,â€‌ says one source, “the delay won’t be much, will itâ€‌