The Government of India on 10 January 2014 notified the new natural gas pricing formulae, which will be in effect from 1 April 2014. As per the newly issued notification, the rate of all domestically produced fuel will be almost doubled to 8.2 to 8.4 dollar per unit.
The notification of the Petroleum and Natural Gas Ministry said that the prices of the gas will be the average price of liquid gas imports into India and benchmark global gas rates. This formula will be in applicable for the next five years from the date of its being into effect.
The rates will be changed every quarter on the basis of the 12 month average of global rates and LNG import price. This formula will be applied to all gas produced by both the public sector firms like ONGC and the private companies.
These guidelines will be applicable on D1 and D3 gas discoveries of the block depending upon the submission of bank guarantees, which will be notified separately. The same rates also will be uniformly applicable to all the fields of India except the fields where the prices has been fixed following the contract and also in the marginal small fields, which requires special dispensation.
The formula was announced during the Petrotech Conference, where the government interacts with the industry leaders and markets the next round of the New Exploration Licensing Policy for the potential investors. Might be possible that the development of the formula will help in development of the new fields, which were missed out by the companies that doesn’t know about the revenue can be generated from the gas fields.
The notification of the formula for price hiking was awaited by the gas and oil industry since 27 June 2013, the date when the new pricing system got the first nod of the Cabinet following the recommendations of the Rangrajan Committee. The notification on the formula was delayed because of the legal fight between the Union Oil Ministry and Reliance Industries after the concerns was raised by the Union Finance Ministry. Reliance has been penalized for the fall in output.
Higher prices against bank guarantees that could be encashed in the case that the output of gas from D1 and D3 fields of KG-D6 block was hoarded by the company, which was approved by The Cabinet in December 2014.
Effects of the formula on prices of other materials: This formula will lead to raise the subsidy on fertilize and will enormously raise the costs of the power plants fired with gas. The fertilizer and power firms lobbying exercise failed to be in effect with the raise of the domestic gas prices.