A government-appointed gas price review panel, led by Kirit Parikh, is recommending a floor and ceiling price for natural gas produced from legacy fields of state-owned firms for five years to help moderate CNG and piped cooking gas rates.
State producers Oil and Natural Gas Corporation (ONGC) and Oil India Ltd (OIL) will be paid a minimum or floor price of USD 4 per million British thermal unit and a cap or ceiling price of USD 6.5 as against the current rate of USD 8.57, three sources with direct knowledge of the matter said.
The report, which calls for not tinkering with the existing pricing formula for difficult fields such as KG-D6 of Reliance Industries and bp plc, is under finalisation and may lower the ceiling price for ONGC gas marginally.
The floor and ceiling price will be applicable for five years although the initial thought was to keep it for three years, they said adding the ceiling price will have an annual escalation clause.
The escalation being suggested is USD 0.5 per mmBtu annually with no change pricing for first two years or a USD 0.25 per mmBtu annual escalation for five years.
The escalation will be adjusted to the foreign exchange rate, they said.
The panel, which was tasked with suggesting a "fair price to the end-consumer" while ensuring a "market-oriented, transparent and reliable pricing regime for India's long-term vision for ensuring a gas-based economy", has favoured two different pricing regimes, sources said.
For the legacy or old fields of ONGC and OIL -- where the cost has long been recovered and which are currently governed by a formula that uses rates in gas-surplus nations such as the US, Canada and Russia -- the committee is recommending a floor or minimum base price and cap or ceiling rates.
This would ensure that prices do not fall below the cost of production, as they did last year, or do not spike to record levels as currently.
Gas from legacy fields is sold to city gas distributors who had to raise rates of CNG and piped cooking gas by over 70 per cent after prices went up from USD 2.90 per million British thermal unit till March to USD 6.10 in April and further to USD 8.57 last month, reflecting a surge in global rates. This rise in rates, which narrowed the gap between CNG and polluting diesel, had prompted the review.
Sources said the city gas will get top priority in the allocation of the gas from legacy fields, called APM gas. The sector will be in the 'no-cut' category, meaning supplies to other consumers will be cut first in case of a decline in production.
