The Comptroller and Auditor General (CAG) report tabled in Parliament on Tuesday said the Oil Ministry's decision in May 2010 to allow Reliance Industries (RIL) to charge in U.S. dollars terms and not in rupees marketing margin on the KG-D6's gas output will result in excess subsidy payout on urea of over Rs. 201 crore.
“Marketing margin for GAIL was fixed in Indian rupee whereas contractor [RIL] was charging this in terms of U.S. dollar,” the CAG noted. Charging of marketing margin for KG-D6 gas in U.S. dollar instead of Indian rupee for a commodity produced, marketed and consumed domestically “is incongruous with Indian market,” it said, adding that exchange fluctuations meant that the margin which was Rs. 244.31 per mscm in 2010-11 increased to Rs. 325.51 per mscm in 2013-14.
The excess marketing margin allowed to RIL over GAIL on the 15 million standard cubic meters per day of KG-D6 gas it supplied to fertilizer units on an average from May 2009 to March 2014 works out to Rs. 201.40 crore, the CAG added in the report.
In the report CAG also added that in May 2010, the Oil Ministry fixed marketing margin of Rs. 200 per thousand cubic meters (mscm). RIL, the Government's contractor for the block, has been charging this margin based on the energy equivalent of gas supplied i.e. $ 0.135 per mmBtu over and above the government approved natural gas sale price.
The Production Sharing Contract for the KG-D6 block does not provide for any marketing margin though, it said.
The $0.135 per mmBtu marketing margin would lead to additional subsidy outgo of Rs. 125 crore a year, according to estimates of the Ministry of Chemical and Fertiliser.
Further, it said that government in December 2011 asked the Petroleum and Natural Gas Regulatory Board (PNGRB) determine quantum of marketing margin on the basis of actual marketing cost though the regulator was empowered to deal only with notified petroleum products and natural gas. “As government has so far not notified natural gas for the purpose, PNGRB was not in a position to evolve any system and fix marketing margin.”
After the Modi government joined office, in July 2014, said the CAG, the Oil Ministry stated that there was a need to regulate marketing margin for supply of domestic gas to urea and LPG producers owing to the implications on the subsidy outgo. In all other cases, marketing margin was to be decided by the buyer and seller mutually.
The Ministry has informed the CAG that the PNGRB has decided to engage a consultant to assist in the task and has sought time keeping in view the fact that process involves collection/analysis of data from various entities, the report said
