Customer anger might force review of price increase

Vol 9, PW 5 (16 Jun 05) People & Policy

Anger against GSPC and Niko is fuelled by the absence of any justification for the price rise in the letters sent to customers.

Their new prices are not linked to the price of crude or with the price of any other commodity, we are told. It seems to have been arbitrarily decided.

More, the price rise letter was issued on Niko Resources letterhead and not by the GSPC-Niko consortium. It is strange that the Gujarat government is opposing GAILs gas price rise but their own corporation (GSPC) is colluding in a price rise within the state.

We understand British Gas-owned Gujarat Gas wrote a strong letter to GSPC-Niko against the unilateral price rise. At the 14th and 15th June meeting, we learn, customers firmly rejected the third, five-year fixed price option.

The price they are asking for is too high, we are told. Instead, most customers preferred the first option but with a stable price for at least three years.

Ideally, we would want $3.65 per thousand cubic feet to continue for three years, but a minimum two years is a must. Adds this customer: After three years we can jointly revisit the whole issue.

Demand for gas in Gujarat continues to rise, despite present consumption of 37m cm/d gas. Customers feel GSPC-Niko has miscalculated the timing of its price rise.

Adds a customer: During the monsoon season (four months from June) demand is usually slack and theres usually about 10% to 15% oversupply. But today, we are told, the market is oversupplied thanks to doubling of the Dahej capacity and increased supplies from Panna, Mukta and Tapti.

Therefore, GSPC-Niko are in a weak position and they understand this. Customers are expecting the consortium to climb down.

From our meetings (on 14th and 15th June) we got the impression that they are prepared to re-think, given the strong opposition. Says another customer: The new contracts are likely to be signed by the end of June or in early July after GSPC and Niko have digested customer feedback.

LNG Summit