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Mid-Course Changes In Gas Pricing To Delay Investments: Reliance
The mid-course changes through price caps not just go against pricing and marketing freedom contracts and government policy promises to companies but also add to uncertainty to a fiscal regime which would impact investments, according to sources briefed on the matter and the presentation.
Billionaire Mukesh Ambani’s Reliance Industries has told a government-appointed panel reviewing gas pricing that any ‘retrograde’ move to artificially cap rates will add to fiscal policy instability, delays investment and dent India’s attempt to become Atmanirbhar in fuel production.
In a submission to the committee headed by Kirit Parikh, which has been asked by the Oil Ministry to look at setting a ‘fair price to consumers’, the firm detailed how the economics of its about-to-start field in the KG-D6 block, where billions of dollars have been spent to recover reserves lying several kilometres below the seabed, will be impacted under different prices.
The mid-course changes through price caps not just go against pricing and marketing freedom contracts and government policy promises to companies but also add to uncertainty to a fiscal regime which would impact investments, according to sources briefed on the matter and the presentation.
The government biannually fixes gas prices based on rates prevalent in surplus nations. Rates according to this formula stayed below the breakeven price of USD 3-3.5 per million British thermal units for six years starting October 2015 but have jumped 5x in the last one year to USD 8.57 for old fields and USD 12.46 for difficult fields.
This rise has prompted user industries to complain, following which the ministry set up a panel to suggest an affordable rate for the users.
The sources said Reliance told the panel that doubling India’s production from current levels to cut rising imports and meet the target of raising the share of natural gas in the primary energy basket to 15 per cent by 2030 from the current 6.7 per cent, would require at least Rs 2000 billion to Rs 3000 billion investment, which can be viable only if a stable fiscal and contractual regime with market-based pricing is provided. Only such a regime can attract investors to commit long-term funds for the exploration and development of such areas.
There has not been any large hydrocarbon discovery in the country in the last more than a decade, resulting in a sustained decline in domestic oil and gas production and the consequent rise in imports for meeting the vast energy demands of the world’s fifth largest economy.
Natural gas is used to generate electricity, produce fertilisers for crops, turn into CNG to run automobiles and piped into household kitchens for cooking. In absence of adequate domestic production, India has raised imports for the fuel by paying four times to overseas suppliers than the price that domestic producers get.
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