What is needed is a pricing policy that should be market-driven. Policy on gas pricing should have to be realistic and practical!
It may be recalled that the gas price saga actually began in January this year. The gazetted new price could not be implemented with effect from 1st April, due to the Election Commission's directive, that the same may influence the voters. This was postponed, as reported earlier, and the Bharatiya Janata Party (BJP) government then decided to review the pricing situation and deferred it for 90 days, setting itself a deadline date of 30th September. We are just two weeks from the D-day!
It appears that the high level panel, consisting of senior secretaries of Power, Fertiliser, Petroleum & Gas ministries have made in depth studies and their findings in a report will finally be reviewed with the Finance Minister. A final call on the gas price applicable will be made.
At the moment, gas price continues to be $4.2 per million British thermal unit (mmBtu). As against this, the imported gas price, on a long term supply basis would have been $15, while the spot price hovered around $16 per mmBtu. The Rangarajan Committee had recommended doubling the price to $8.40 per mmBtu.
The Kelkar Committee, it may be remembered, had suggested that the non-renewable resource like gas has to be sold by auction to the highest bidder. The Rangarajan Committee, as mentioned above, came with a price level of $8.40 which, compared to the current international price, is 50% cheaper!
Until such time India is able to source its own gas, from known wells, or from newly to be discovered wells, it will still have to import at least 30% of its needs. But then, the needs are rising by the hour! And the international explorers are literally scared of the (New Exploration Licensing Policy (NELP) because of the uncertainty associated with exploration on one hand and the unknown "price" factor that may come to play on the other!
What is needed is a pricing policy that should be market-driven. Policy on such issue should have to be realistic and practical!
For instance, let us take a hypothetical case. In the Kolar Gold Mines in Karnataka, or in some other state like Rajasthan, our geologists (or some foreign explorer) may discover mammoth strains of gold-bearing rocks. If these are properly mined and processed, let's say, India would be able to produce a few hundred tonnes of gold every year. Would the government then decide and announce a selling price of this gold at 50% or even 15% cheaper than the international market price, because it has been "found" indigenously? Or, will they turn around smugly and say the gold price will fall in line with the international market? Hence, pricing of products of such nature ought to be based on market conditions.
As for the gas, even the government-owned ONGC has been demanding a workable price of $7 per mmBtu to make off-shore operations viable. This does not mean that on shore discovered gas ought to be priced lower! Profit motivation will drive enterprises to work harder and seriously to focus on their sole aim of discovering such valuable products.
Therefore, bearing in mind our growing needs of gas, it is hoped that when the final call is taken on pricing, the following factors may be borne in mind:
a) decide the price of gas in rupees, valid for six months, with effect from 1 October 2014
b) international price of gas has no bearing on the indigenous production; if at all any link is to be established, as a guiding factor, than, any price variation over plus/minus 5% over the current price of $15 will be adjusted for the next six months, starting 1st April 2015. This will be done automatically, without any suspension of supplies.
c) fertiliser units will be given their full needs from available supplies, but in the same pattern as of now. They need to price their final fertiliser products based on their own actual cost of both indigenous and imported gas; government must gradually reduce the subsidy
d) gas producers need to be encouraged to retain 25% of any increased production that they may be able to achieve, from current levels, and be allowed to offer the same at the market price
e) FDIs in NELP - if and when they "discover" oil/gas, they shall be paid in denominated foreign currency, say in dollars; price to be applicable in the same manner as explained for rupee payment to indigenous explorer, like Reliance, ONGC, Cairn or Gujarat Gas or any other
f) in case of foreign partner of the contractor, like in case of Reliance having BP and Niko, they need to be assured that their profits shall be repatriated in the normal way, as per exchange rate ruling on the day of transaction
g) do not mix the imported and indigenous gas prices to arrive at any "pooling price", as this will only create opportunities for lengthy debates
When such an announcement is made, there are bound to be some counter proposals/ requests from the gas producers. These should be considered without prejudice so that work goes on without interruption, and thereby bring trust and confidence in the international market.
(AK Ramdas has worked with the Engineering Export Promotion Council of the ministry of commerce. He was also associated with various committees of the Council. His international career took him to places like Beirut, Kuwait and Dubai at a time when these were small trading outposts; and later to the US.)
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Perhaps you would do well to look up what was the result of the nationalization of the coal industry some three decades ago? We are still in a mess. We still import millions of tonnes of coal.
Take ONGC, which is a totally government owned company. Look at what is happening ... they discovered oil/gas years ago in the east coast and their chairman has just stated couple of days ago that they expect to start production in 2018! If this was in the hands of
Cairn, Reliance or anybody else, they would have started production
long ago.
My understanding of this is that Reliance is not a "labour" contractor - they have a lot more to do in the technical front as well.
Once a contract is signed, both parties must honour terms and conditions they accepted. The aam aadmi is interested in getting the final product and not interested in petty accusations of the involved parties. They must get on the job and deliver.
You have once again fail to answer my pointed questions about the bid and contract which RIL signed with GoI when it applied for the exploration license under NELP? You mentioned in your comment that both parties must honor terms and conditions. But then I haven't come across one article which mentions any breach of T&C on part of GoI. BTW we all can see today,after SC judgement, that it was not the nationalization which is the problem. The problem is crony capitalism of Indian businesses which has led us to deep mess in coal industry,telecom industry or state run banks. And with the latest SC ruling, it makes the argument more credible that most big businesses in India are ready to loot the nation by colluding with corrupt bureaucrats and politicians. And for the record the common citizen is indeed interested in these not so petty accusations/demands/threats of reduced gas production by RIL.