Rangarajan panel to suggest basis for gas pricing

Last Updated: Fri, Nov 30, 2012 04:25 hrs

The high-level committee on production sharing contracts is set to change the rules for investment in the oil and gas sector.

Chaired by C Rangarajan, chairman of the Prime Minister's Economic Advisory Council, it is expected to lay down the broad contours of natural gas pricing in its report, expected in a week or two.

Though much of the report is expected to be devoted to reworking the bidding criteria and future contracts, it would also deal with pricing, said a senior government official. The committee is likely to recommend a pricing formula, though it may refrain from a specific recommendation on the controversial issue of gas produced by Reliance Industries Ltd (RIL).

The current $4.2 a million British thermal unit (mBtu) landfall price for RIL gas was cleared in 2007 by the PMEAC but it had recommended changes in the process for arriving at the price. It had, at the time, clearly said all consumers must buy gas at market prices. For the fertiliser and power sectors, the subsidy element in the price was proposed to be met by the government.

Under the current contract, the government had price approval power only but the dispute between the Ambani brothers on gas supply had seen an empowered group of ministers fixing the price in 2007. It was frozen till March 2014 but RIL wants to be given a market price when the government reviews its decision.

The Rangarajan committee was set up in May, following suggestions of the Comptroller and Auditor General, whose report had criticised the investment multiple-linked profit sharing between the government and companies holding oil and gas blocks. The committee is likely to recommend doing away with the cost as an element for working out the government share in oil and gas production, replacing it with a production-based sliding scale.

The suggestions would not impact existing contracts. "The sanctity of earlier contracts will not change," an official had earlier told Business Standard.

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