Giving air to the concerns of the industry and international investors, Finance Minister P. Chidambaram on Thursday announced that the Government was reviewing the gas pricing policy and would shift from profit sharing to revenue sharing formula for the oil and gas exploration projects in future.
Presenting the 2013-14 Budget in Parliament, Mr. Chidambaram said a policy to encourage exploration and production of shale gas will also be announced. He said the oil and gas exploration policy will be reviewed to move from the profit sharing to revenue sharing contracts in the oil and gas sector. ``The natural gas pricing policy will be reviewed and uncertainties regarding pricing will be removed. NELP blocks that were awarded but are stalled will be cleared,’’ he added.
Leading companies including RIL and BP Plc have sought a review of the present gas pricing policy in order to tap the huge potential of hydrocarbons in basin in various parts of India. Majority of the domestically produced natural gas is priced at $4.2 per million British thermal unit, which is one-third of the imported cost.
Only recently, the C. Rangarajan Committee, appointed by the Petroleum and Natural Gas Ministry, had suggested pricing domestically produced gas at an average of international hub prices and stripped down cost of imported liquid gas (LNG). Currently, this average comes to about $8-8.5 per mmBtu. The Petroleum and Natural Gas Minister, Veerappa Moily, has already accepted the recommendations of this committee and is in the process of moving Cabinet for a formal approval.
Similarly, the present cost-recovery model of the New Exploration Licensing Policy (NELP), which allows operators to recover all their investment in successful as well as unsuccessful wells from sale of oil and gas before sharing profits with the Government, had come in for tough criticism from the Comptroller and Auditor General (CAG) which had asked the Government to review the production sharing contracts (PSCs) and make changes for protecting its interests. The CAG felt the cost recovery model incentivises firms to keep raising investment to postpone the Government's profits.
On its part, the Rangarajan committee has suggested moving to a revenue-sharing model where companies will have to bid upfront what part of the production they will share with the Government from the very first day, to put an end to such controversy.
BP India country head Sashi Mukundan said: “We welcome the focus on regulatory and pricing clarity for the exploration and production industry announced in the budget today. A key next step should be the transition of prices of domestic natural gas to import parity in the next 3 years, similar to the diesel price reforms. To me, these measures will help build a sustainable gas market in the country,” he added.
Essar Oil CEO, L.K. Gupta said it was nice to see the Government re-emphasise the need for a natural gas pricing policy. ``We eagerly await more clarity on this as well as the shale gas policy as we believe India, which imports about 80 per cent of its oil and gas needs, cannot wait any longer to develop its own natural resources towards meeting its energy requirement,’’ he added. He said it was disappointing that Mr. Chidambaram has not removed the tax anomaly between branded and unbranded fuel, given that such fuel have been proved to increase engine efficiency and enhance their life, thereby reducing consumption.