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Rediff.com  » Business » ONGC, OIL hike gas price to $4.2 per mmBtu

ONGC, OIL hike gas price to $4.2 per mmBtu

May 19, 2010 18:59 IST

The government on Wednesday more than doubled the price of natural gas produced by state-owned Oil and Natural Gas Corp (ONGC) and Oil India Ltd to $4.20 per mmBtu, at par with the rate at which Reliance sells its gas.

The Cabinet on Wednesday approved an oil ministry proposal to raise the rate of gas sold to power and fertilizer firms from $1.79 per million British thermal unit to $4.20, sources said.

ONGC and OIL will get $3.818 per mmBtu price for the gas they produce from fields given to them on nomination basis and after adding 10 per cent royalty, the fuel will cost $4.20 per mmBtu to consumers.

On top of the $4.20 per mmBtu, state gas transporation and marketing firm GAIL India would be allowed to charge 11.2 cents as marketing margin.

Over and above this would be the taxes and other levies and pipeline transportation charges. While the move will help the state-run firms breakeven in gas business, it would result in hike in electricity generation tariff and fertilizer production cost.

But since fuel cost in power and fertilizer business is pass-through (wherein companies pass on the cost to consumers), it would not impact any of the companies that buy ONGC gas. Also, GAIL which was not allowed to charge marketing margin would now benefit from the decision.

The government controls rates of gas, produced by ONGC and OIL from fields given to them on nomination basis (called APM gas). APM gas price were last revised in 2005 to Rs 3,200 per thousand cubic meters ($1.79 per mmBtu).

Today, the Cabinet decided to raise APM gas price to Rs 6,818 per thousand cubic meters or $4.20 per mmBtu, rates which would now be at par with that of gas produced from Reliance Industries' KG-D6 fields, sources said.

GAIL would be allowed to charge Rs 200 per thousand cubic meters (10.5 cents per mmBtu) as marketing margin.

ONGC, in 2008-09, lost Rs 4,745 crore (Rs 47.45 billion) in revenues on selling 17.71 billion cubic meters of gas at the government fixed rate.

The oil ministry had previously wanted to raise the gas price in stages to $4.20 per mmBtu. It wanted rates paid to ONGC and OIL to be immediately hiked Rs 4,142 per thousand cubic meters ($2.32 per mmBtu).

The consumer price at this would have been 10 per cent higher at $2.55 per mmBtu. Thereafter, in three more installments, the rates were to be hiked to $4.20 per mmBtu.

However, on the insistence of the Finance Ministry, the oil ministry withdrew the proposal and moved a fresh one seeking to raise the price of the gas under APM to Rs 6,818 per thousand cubic meters or $4.20 per mmBtu, sources said.

The finance ministry wanted the hike to happen in one go and not in stages, they said. Because of today's decision, ONGC would gain Rs 5833.78 crore (Rs 58.33 billion) more revenue a year.

The government has set $4.20 per mmBtu as the sale price of gas from Reliance Industries' eastern offshore KG-D6 fields, while the gas from BG Group-operated Panna/Mukta Tapti fields is sold at $5.73 per mmBtu.

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