These are the three things that remain opaque. One, would cost recovery be allowed as at present or would future bids be based on a share of aggregate revenue from the field, regardless of cost? If cost is allowed to be recovered, then investors would be willing to accept a relatively low selling price. Two, what is the premium the government says it is willing to give investors in deep-water fields? Will this figure be arbitrary, to be decided by the government on a case-by-case basis, or will there be a transparent mechanism based on measurable parameters? Finally, and this is relatively minor, how is the transport cost of gas traded at hubs to be determined, what is the assumed origin of the traded gas (after all, the gas traded at Henry Hub in the US could include, in theory, regasified LNG)?
The new formula excludes any LNG price (shorn of the costs of transportation, liquefaction and regasification, as recommended by C Rangarajan). Given the reality that India will continue to depend on LNG imports in the near future, is zero weightage for LNG justified, as a determinant of the retail price? And would the premium that is paid to deep-water investors be passed on to consumers? If so, how? In the absence of clear answers to questions such as these, we are back to an administered pricing regime for gas, with the profitability of hydrocarbon investment a function of political goodwill. This is not particularly reformist, to say the least.
3 Comments on this Story
TRUE INDIAN1929 days ago
Government new price mechanism is more transparent than earlier formula . It will be made more informative as government has decided to attract foreign capital in the exploration of petroleum products !
Mayur Ganapatye2021 days ago
It is very difficult to talk about reforms in totality. Though Governments intend to introduce better reforms, it certainly depends upon many factors which are not within the control of Government.
Jayeshkumar Panchal2282 days ago
How can the Gas prices be Fixed. ..when Oil Prices are falling?