Gas deals between non-affiliates should be deemed approved: indust

New Delhi, Sep 7 (UNI) The oil industry has told the Petroleum Ministry that gas sale deals under the Production Sharing Contracts (PSCs) should be open for review only if there is evidence to indicate that a transaction was not on arms length basis.

''Transactions between non-affiliates should be deemed approved and only when there is evidence to indicate that a transaction may not be at arms length should the government of India be moved to open an inquiry,'' it said.

The comments by the industry were made in response to an invitation for suggestions made by a committee set up by the Ministry to formulate transparent guidelines for approving gas price formula and the basis for giving government approval under the production sharing contracts (PSCs).

The industry pointed out that an exploration and production (E&P) company, as a gas supplier, would be interested in maximising the return from its gas sales.

''Thus an E&P company's (with no affiliates) interests will be aligned with those of the Government of India from a profit petroleum and royalty regime standpoint....Ordinarily, there should be no concern with unaffiliated third party transactions since there is no financial incentive to an E&P company to offer a lower price,'' it pointed out.

The industry admitted there were loopholes which non- affiliated parties could use to get around this. ''As a result, the GOI should monitor such sales to ensure there is no abuse but approval should not be required for each transaction.'' Similarly, the short-term and spot transactions, either between non-affiliates or between affiliates, should also be deemed to be approved and only if evidence indicates questionable pricing, should the transaction be reviewed, it felt.

The public sector Gas Authority of India Ltd (GAIL) said that in the absence of arm's length transaction between seller and buyer during sale of gas under a PSC, it is necessary to link the price of gas to alternative fuels available in the area after normalising the price taking into consideration various elements of delivered price of alternative fuels.

''Such linkages will facilitate the government to realise its right opportunity cost of the gas under PSC in the form of royalty and profit petroleum,'' it said in its response to the committee.

It is also necessary to have ceiling price to take care of the maximum affordability or paying capacity of large consumer base in that area and there should also be a floor price to take care of cost plus price of the PSC gas, GAIL said.

''Even in the case of price discovery in arm's length transaction, it is suggested that it should be through open bidding process by seller and the price so discovered should be the reference price for the purpose of royalty and profit petroleum recovery,'' it said.

''The gas market in India is at a nascent stage and we need to give it all the freedom to grow in line with market forces,'' Jubilant Oil and Gas Private Ltd said in its letter to the Petroleum Ministry.

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