Corporate Dec 28, 2012
New Delhi: Natural gas producers like Reliance Industries should be allowed to charge market prices, the Plan for next five years adopted by the nation's highest planning body, headed by the prime minister, said.
The 12th Five Year (2012-17) Plan adopted by National Development Council (NDC) on day said, "Natural gas prices charged to producers must be determined by market forces."
Currently, majority of the natural gas produced in the country is priced at $4.2 per million British thermal unit, which is almost a third of the rate at which gas in its liquid form, called liquefied natural gas or LNG, is imported.
RIL and its partner BP Plc have been pitching for market price for the natural gas produced from eastern offshore KG-D6 fields.
"The concept of uniform gas price across consuming sectors also needs to be examined afresh as the desire to keep prices low for certain sectors tends to distort pricing; it is inconsistent with the principle that the price of gas will be determined by market forces," it said.
Addressing the NDC, Prime Minister Manmohan Singh on Thursday stated that natural gas as also coal and other liquid fuel rates in India were "well below international prices".
"If domestic energy prices are too low there will be no incentive to increase energy efficiency or to expand supply," he said, adding, "Immediate adjustment of prices to close the gap is not feasible, but some phased price adjustment is necessary."
Demand for natural gas, the 12th Plan document said, will increase from 194 million standard cubic meters per day in 2011-12 to 286 mmscmd in the current fiscal. This is expected to rise to 466 mmscmd by the end of the 12th Five Year Plan in 2016-17.
The Plan document said there was a need for clarity on fiscal incentives on exploration of natural gas under New Exploration and Licensing Policy (NELP).
Currently, a seven year holiday from payment of income tax is available only for crude oil produced from an area awarded under NELP. Natural gas produced from the same well does not get any tax incentives.
It called for providing 'Declared Goods Status' for natural gas/LNG so that it is available at uniform price in most of the states.
The Plan document called for eliminating "the uncertainty that has arisen regarding gas pricing from NELP production sharing contracts by implementing a new design of contracts".
The recommendation of the Rangarajan Committee may be an important input in finalising this policy, it said.
"Appropriate steps should be taken to resolve conflicts in existing contracts where the interpretation of the contract term is open to multiple options."
More From Firstbiz.