RIL gets nod for gas price hike, with riders.

​New Delhi: The government on Thursday conditionally allowed Reliance Industries Ltd (RIL) to raise the prices of natural gas from 1 April 2014.

The Union cabinet allowed the hike subject to the condition that the firm will furnish a bank guarantee equal to the incremental revenue it would generate from the increase. The guarantee will be encashed if charges that the firm had been hoarding gas and deliberately suppressing production at D6 oilfield in the Krishna-Godavari (KG) basin, off the Andhra Pradesh coast, are proved.

With this conditional approval, RIL will be able to nearly double the price of gas it supplies from $4.2 per million metric British thermal units (mmBtu). The cabinet effectively rejected a demand by the finance ministry for a cap on the price RIL can charge till such time the firm can make up for shortfall in production, or till it is proved that it is not responsible for the deficit.

“It is a positive development for RIL, but not one that is likely to have an immediate impact on the company’s financials, since there is very little gas production,” said Niraj Mansingka, oil and gas sector analyst at Edelweiss Securities Ltd. “Any financial benefits will be visible once gas output increases over the coming years pursuant to potentially higher investments by the company towards such efforts.”

A panel led by C. Rangarajan, the Prime Minister’s economic adviser, in December 2012 suggested a system that would price the fuel at $8-8.5 per mmBtu. This compares with the current domestic prices that range between $3.5 and $5.73 per mmBtu. Imported natural gas costs around $14.17 per mmBtu.

The proposal had faced opposition from quarters within the government. On 20 March, Mint first reported that two key ministries—power and fertilizer—had reservations on the recommended pricing formula. The Rangarajan panel had indexed the price of domestically produced gas to prices prevailing in the global market, effectively recommending the freeing of gas prices and scrapping the administered pricing mechanism (APM).

It suggested a formula in which the final base price was arrived at by the simple average of the respective weighted averages of the prices of imported gas across sectors over a 12-month period and that of prices in the three major global gas trading hubs— the US Henry hub, the UK National Balancing Point and Japan’s custom-cleared rate.

The cost of imported gas was calculated on the basis of the so-called netback mechanism, in which transport and liquefaction costs are subtracted from the landed price of gas to arrive at the implied base price. Prices will be revised every quarter based on the average of past four quarters, with a gap of one quarter.

The cabinet committee on economic affairs (CCEA) also in principle approved a financial package of Rs.6,600 crore for cash-starved sugar mills to make payments to cane farmers. Information broadcasting minister Manish Tewari said notification on the decision is being finetuned.

“The interest subvention will be 12%, which will be borne by the Sugar Development Fund,” food minister K.V. Thomas said. The food ministry proposal before CCEA was based on recommendations of an informal group of ministers set up by the Prime Minister under the chairmanship of agriculture minister Sharad Pawar to address the industry’s cash crunch. The loans will be provided by banks to mills exclusively for making payments to sugarcane farmers, including arrears. The loans are equivalent to the excise duty paid by mills in the past three years.

CCEA also extended sugar exports without quantitative curbs for the year that started in October 2013. Other recommendations of the ministerial panel that are yet to be considered include recast of loans taken by mills, sops to produce 4 million tonnes (mt) of raw sugar, setting up a buffer stock and doubling of ethanol blending in petrol to 10%.

The government allowed Coal India Ltd, the world’s largest miner of coal, to produce coal bed methane (CBM). Present regulations do not allow simultaneous extraction of CBM and coal. CBM exploration and production is allowed only in pure coal-seam gas bearing blocks which are auctioned.

India has CBM reserves of 4.6 trillion cu. m. Since 2001, 33 CBM blocks have been auctioned. Oil and Natural Gas Corp. Ltd and Great Eastern Energy Corp. Ltd were given blocks on a nomination basis. Currently, three CBM blocks are producing around 0.15 million standard cu. m per day (mscmd). This may touch 7.4 mscmd by 2013, according to the Directorate General of hydrocarbons.

A Press Trust of India report said CIL had short-listed five blocks in Jharkhand with estimated reserves of about 1 trillion cu. ft (tcf) for exploration in the first stage. They are: Munidih (282 billion cu. ft-bcf), Kathara (282 bcf), Asnapani (212 bcf), Putki Buliwari (247 bcf) and Mohuda (14 bcf).

The cabinet also asked the National Commission for Backward Classes to give its suggestions on the inclusion of Jats in the central list of other backward classes in nine states. A group of Jat community members on Monday said it will withdraw support to the Congress party in the Lok Sabha polls if its demand for reservation under OBC category is not addressed.

The cabinet also cleared India’s stand at the Bali ministerial of the World Trade Organization in protecting India’s food security plan. “India came out fairly satisfied from the ministerial,” Tewari said at the press conference. Cabinet approval was also required to carry out necessary modifications to domestic laws since India agreed to terms under the trade facilitation pact.

Source : livemint.com