Price shock for subsidised (APM) gas users

Vol 13, PW 22 (22 Apr 10) Midstream & Downstream

There’s bad news in store for companies that draw more subsidised gas than permitted.

From now on they’ll have to pay the ‘free market’ price for all gas drawn over and above the amount they have been sanctioned by the government. Worse, these payments will be backdated from July 1, 2005 - in what promises to be a logistical accounting nightmare for both customers and GAIL, the principle conduit for gas produced by ONGC and Oil India and sold at heavily subsidised rates under the discredited Administered Pricing Regime, which should have been abolished long ago, but is still in place, distorting the market.

PETROWATCH learns the new government directive was conveyed to ONGC, GAIL and Oil India managing directors by oil ministry director (gas and power) Manu Srivastava on February 29. In his letter, Srivastava stresses his directive is nothing new; that he is only enforcing an earlier government directive issued five years ago.

“It is clearly mentioned in the (June 20, 2005) pricing order,” says Srivastava, “that APM gas must be supplied against existing allocations. Hence it is obvious that the supply of APM gas at APM rates is limited to the extent of the APM allocation made by the former Gas Linkage Committee (GLC).

” Srivastava instructs GAIL to “immediately switch to charging non-APM prices for supplies beyond the APM allocation” and to work out and collect all past dues for excess gas from its customers. More, he slams customers that routinely draw excess APM gas.

“It is not a satisfactory arrangement,” writes Srivastava, “if a customer is supplied more (APM) gas than his allocation on a sustained and continuous basis.” From now on, says Srivastava, GAIL must obtain government permission before increasing APM gas supplies to customers.