In a significant development, the government has given national oil firms ONGC and OIL freedom to price any additional natural gas produced from blocks given to them on nomination basis at market rates.

So far, all gas — current and future — produced from blocks given to Oil and Natural Gas Corp (ONGC) and Oil India Ltd. (OIL) was priced at government-controlled rates, called Administered Price Mechanism or APM.

The Petroleum Ministry, in an order dated May 31, 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 June 1 has been more than doubled to $ 4.2 per million British thermal units (mmBtu), on par with the rate at which Reliance Industries sells gas from its eastern offshore 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 June 1 was sold at Rs. 3,200 per thousand cubic metres or $ 1.79 per mmBtu.

For customers in the NorthEast, the net consumer price would be 60 per cent 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 U.S. dollars.

"The price (of $ 4.2 per mmBtu) would be converted to rupees per thousand cubic metres (mscm) at the 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 Rs. 200 per mscm.

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