India deregulating petroleum industry, freeing natural gas pricing

Sep 16, 1997 02:00 AM

The Indian cabinet has approved a phased shift towards free market pricing of natural gas by linking it with global fuel oil prices.
The consumer price of natural gas would be fixed at 55 % of the ruling price of fuel oil. Invoking this formula, the gas price has been raised with immediate effect to 2,200 rupees ($ 60, $ 1 - 36.5 rupees) per thousand cubic metres from the current 1,850 rupees.
The gas price linked to the global price of fuel oil will be determined every 4 months, a government statement said.
The natural gas price would be raised to 65 % and 75 % of the prevailing fuel oil price in 1998-99 and 1999-2000 respectively, it said.
"The gas price policy will be reviewed after three years with a view to introducing 100 % parity with the price of fuel oil over the fourth (2000/2001) and fifth (2001/2002) years," the statement said. Gas prices during the first three years will be allowed to fluctuate within a ceiling of 2,850 rupees per thousand cubic metres and a floor of 2,150 rupees, it said The phased decontrol of pricing of natural gas is part of the Indian government's initiative to deregulate the petroleum sector.
"Consumer prices of gas have been linked to the international price of fuel oil in order to introduce transparency in the gas price and to rationalise gas utilisation," the statement said.
The government on Sept. 1 announced a gradual deregulation of the hydrocarbon sector in an effort to provide funds to the cash-strapped state-run oil companies and to attract private and foreign investment in the sector. Internationally the practice is to link the price of natural gas to a petroleum product with a similar calorific value.
In India natural gas is being sold at lower than the price of alternative fuels such as diesel, fuel oil and naphtha used by the fertiliser, petrochemicals and power sectors.
Gas prices pegged lower than the cost of production and transportation were leading to inefficient use and acting as a deterrent to private sector participation in exploration and production of natural gas in the country.
The government also raised the prices paid to gas producers Oil and Natural Gas Corp (ONGC) and Oil India Ltd to 1,830 rupees per thousand cubic metres from 1,500. Producer prices would also be revised every 4 months, the government statement said.
The charges payable to state-run Gas Authority of India Ltd (GAIL) for transporting gas from producing fields to consumers through the main Hazira-Bijaipur-Jagdishpur pipeline was also raised to 1,150 rupees per thousand cubic metres from 850 rupees.
The concessional price for the remote north-east Indian states has been raised to 1,200 rupees per thousand cubic metres during 1997/98 from 1,000 rupees.
In 1998/99 and 1999/2000, gas prices in the region would be 1,600 and 1,700 rupees per thousand cubic metres, the statement said.
GAIL will be compensated for the subsidy to north-eastern states through a transfer of 2.5 billion rupees from the revenue collected through gas price increase, the statement said.

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