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Govt gives ONGC, OIL freedom to price natural gas

ONGC and OIL would have the freedom to sell any production from new fields in their nominated blocks at non-APM rates

In a significant development, the government has given national oil firms Oil and Natural Gas Corporation (ONGC) and Oil India Ltd (OIL) freedom to price any additional natural gas produced from blocks given to them on nomination basis at market rates, reports PTI.

So far, all gas-current and future-produced from blocks given to ONGC and OIL was priced at government-controlled rates, called APM.

The petroleum ministry, in an order dated 31st May, has now made a distinction between existing producing fields and new ones in the nomination blocks.

"ONGC and OIL would have the freedom to sell any production from new fields in their nominated blocks at non-APM rates," the order said.

Even the price of APM gas from 1st June has been more than doubled to $4.2 per million metric British thermal units (mmBtu), at par with the rate at which Reliance Industries (RIL) sells gas from its eastern offshore Krishna Godavari (KG)-D6 fields.

"It has been decided that the price of APM natural gas produced by national oil companies (NOCs) be fixed at $4.2 per mmBtu less royalty. Hence, the APM price inclusive of royalty (to customers) would be $4.2 per mmBtu," the order said.

APM gas prior to 1st June was sold at Rs3,200 per thousand cubic metres or $1.79 per mmBtu.

For customers in the North-East, the net consumer price would be 60% of the new rate, i.e. $2.52 per mmBtu. "The difference would be paid to ONGC and OIL through government budget."

The government has also made a significant departure from the previous practice of pricing natural gas in rupees and has now decided to price it in US dollars.

"The price (of $4.2 per mmBtu) would be converted to rupees per thousand cubic metres (mscm) at the Reserve Bank of India (RBI) reference exchange rate of the month previous to the month during which supply of APM gas is made. The price in rupees per mscm would be adjusted every month on the basis of RBI reference exchange rate," the order said.

This rate would be excluding cess, transportation charge, marketing margin/service charge and taxes.

"As regards existing producing fields, the production of ONGC and OIL from these, including any additional production, would be considered as APM gas and sold at APM rate," the order said.

The order said the government has also decided that company marketing the APM gas, GAIL India Ltd, has been allowed to charge a marketing margin of Rs200 per mscm.

ONGC and OIL would, however, not have the freedom to choose their customers. "The sale of APM and non-APM gas produced from nominated blocks would be in accordance with government's decisions regarding commercial utilisation of gas," the order said.

In case of reduction in availability of APM gas, supplies to customers would be reduced on a pro-rata basis.

To meet the deficit in supply of APM gas, GAIL and other oil marketing companies marketing non-APM natural gas would supply non-APM gas, subject to availability and connectivity, to connected APM customers on priority, provided they are willing to pay the higher non-APM price, it added.

The Cabinet had last month approved the raising of gas price from Rs3,200 per thousand cubic metres ($1.79 per mmBtu) to Rs6,818 per thousand cubic metres ($3.818 per mmBtu). After adding royalty, the price for user industries would be Rs7,500 per thousand cubic metres (Rs 7.5 per cubic metre) or $4.2 per mmBtu.

The hike in gas price would also lead to a rise in the cost of fertiliser production and power generation. However, fertiliser prices will not increase as the government subsidises the sector.

The increase in power tariffs would be marginal as only 11% of the total electricity generated in the country comes from gas-based power projects. And, of these, only one-third use the gas with the increased price tag.

ONGC and OIL would gain about Rs5,000 crore and Rs700 crore in revenue respectively due to the gas price increase.

GAIL India, which has been allowed to charge Rs200 per thousand cubic metres or 11.2 cents per mmBtu as marketing margin, would gain Rs150-Rs200 crore in revenue annually.

State-run ONGC and OIL produce 54.32 million cubic metres of gas per day-about 40% of the total amount originating from the country-through fields given to them on a nomination basis.

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Punj Lloyd wins contract, worth Rs96 crore from Hyundai Engineering

Punj Lloyd Ltd said it won a contract, worth Rs96 crore, from Hyundai Engineering & Construction Co Ltd.

In a regulatory filing, the company said its scope of work includes installation of steel structure, equipment and piping on habshan-5 utilities & off-sites project in UAE.

On Thursday, Punj Lloyd shares ended 1.9% up at Rs117 on the Bombay Stock Exchange, while the benchmark Sensex closed 1.7% up at 17,022 points.

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