Government begins debate on how to price NELP gas

Vol 10, PW 11 (21 Sep 06) People & Policy

British Gas and Cairn Energy have made a first set of presentations to the oil ministry on the contentious issue of gas pricing from NELP blocks.

We began the process early this month (September), a ministry source tells PETROWATCH. A lot of comments have come in and presentations are being taken.

BGs and Cairn presentations were made on 14th September (Go to articles 20 and 21 for details of BG presentation). Concerns over NELP gas pricing emerged with a bang on 26th July this year when the oil ministry rejected a non-transparent agreement between Mukesh Ambani-controlled Reliance Industries to sell future D-6 gas to brother Anil Ambani-controlled Reliance Natural Resources.

Anxious to avoid a repeat, the ministry is meeting oil company representatives to thrash out clear guidelines to govern future gas pricing from NELP blocks. Leading talks with industry is a ministry panel headed by joint secretary and financial advisor PK Sinha that includes joint secretary gas Ajay Tyagi, joint secretary exploration (to be formally appointed) and a DGH representative.

A decision to set up the PK Sinha panel was made in August; just days after the ministry rejected the cosy pricing formula between the two estranged Reliance brothers. Ministry officials rubbished their agreement, saying it was not based on an arms-length relationship.

Now, the ministry is working to establish a framework of transparent guidelines that it hopes to publish by the end of October. Will any guidelines override the free market gas pricing principles in the PSC No, stresses a source, the PSC provisions will remain as they are.

The committee will not tamper with them. We know PSCs are clear that gas prices are market driven.

Instead, the Sinha panel will try to draw up the principles on which gas should be valued. Nobody can say exactly what is the basis of gas valuation.

Only on one issue is there clear unanimity: the need for an arms-length relationship between buyer and seller.