DGH says there will be no dual pricing of gas

MUMBAI: The Director General of Hydrocarbons (DGH), who advises the government and oversees the implementation of the oil and gas prospecting and production in the country, said his agency was not in favour of a “dual price” policy for the oil and gas produced in the country.

V K Sibal, the DGH, said price of natural gas approved by the government will apply to final sales and not just for valuing government’s share in profit.

Though the government had exempted its approval of RIL’s gas price from ‘prejudicing’ the RIL-RNRL gas dispute, Sibal’s stand is likely to find echo during the cross examination of the government representative in the case at the Bombay High Court next week.

Asked whether the government had changed its policy of giving pricing freedom to the contractors under its exploration policy, Sibal said:

“Pricing freedom is there... and they can sell it at less than $4.2 [per unit] or higher than that. But for that, the contractor has to come back to the government and get the new price approved...,” he told DNA Money.

In the dispute, Mukesh Ambani promoted Reliance Industries (RIL), a contractor of the government, has been maintaining it cannot sell gas at less than the government-fixed price of $4.2 per unit.

Because of this, it has maintained, it cannot honour its two-year-old agreement with the Anil Ambani-promoted Reliance Natural Resources (RNRL) to supply gas at $2.34 per unit.

The Bombay High Court has asked the government to clarify whether RIL has the right to sell gas at a price different from $4.2 per unit — the price it got approved by the government a year ago.

The court wanted to know if the pricing freedom enjoyed by the contractor entitled them to sell the gas at any price as long as the government got its share of the profit at the rate approved by it.

In reply, the government has said that an empowered group of ministers (eGoM) had approved RIL’s proposal of pricing its gas from the field at $4.2 per unit and it applied to “all gas” from the field.

However, the government reply did not clear the confusion as it was silent on the exemption granted by the eGoM to the current case from the scope of the decision.  Under the New Exploration and Licensing Policy of 1998, the government had guaranteed “pricing freedom” to the contractors who find hydrocarbon reserves in their exploration areas.

While, for oil, the price was linked to international crude prices; for natural gas, the price was to be arrived at through a transparent bidding process.

On the general policy, Sibal said the pricing freedom, therefore, does not mean that the contractor can sell at any price.

“Suppose if they come and say there are buyers at $10. They sell it at $10 also if they first get the price approved by the government. However, there cannot be two prices. If the contractor is selling at $10, the government’s share is also going to be valued at $10. The price is for both [valuing government’s share and actual sales],” he said.

The government had, in April 2006, rejected RIL’s proposal to sell gas at that price, pointing out that RIL had not arrived at the price through ‘arm’s length’ negotiations.
In September 2007, it approved RIL’s revised proposal to price the gas at $4.2 per unit, but “without prejudice” to the RIL-RNRL case.

e_sreejiraj@dnaindia.net