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Gas discovery under PSC needs government approval: Deora

Written by: Staff
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New Delhi, Dec 5 (UNI) Petroleum Minister Murli Deora today said that the formula for gas pricing for computing government revenue from gas discovered in blocks under Production Sharing Contract (PSC) regime will need government approval.

Speaking in the Rajya Sabha, Mr Deora said that a Committee was constituted by the Government to formulate transparent guidelines for approving gas price formula/basis for granting Government approval under the Production Sharing Contracts (PSCs), for the purpose of computing cost petroleum, profit petroleum, royalty and other calculations required under PSCs.

Mr Deora said the Committee was headed by Joint Secretary and Financial Adviser, Ministry of Petroleum and Natural Gas and included Joint Secretary (Exploration), Joint Secretary (Marketing), and Director General, Hydro Carbon as members.

The Minister also said the Committee being a departmental one and entrusted with the task of valuation of Government under the PSCs, did not include members of other Ministries.

The Committee had sought the views of various stakeholders across different sectoral industries/users, had extensive interaction with them, and has taken their views into consideration while finalising its recommendations, Mr Deora said.

Minister of State for Petroleum, Dinshaw Patel said that where valuation of natural gas has to be necessarily done by the Government, the Committee says it may be done on most recent competitively determined price in the region duly indexed to the present. The indexation shall be as per the provisions of market-determined contract as each market determined price has a contract which sets out various terms and conditions of supply of natural gas.

Typically long-term gas contracts have a clause for periodic gas price reviews. If price is reviewed as per the contract, that may become the new reference price. For interim period, it may be linked to percentage increase in price of Furnace Oil (FO).

FO is not only the cheapest liquid fuel, but has also shown least price volatility in recent years.

Above valuation methodology may be applied only when actual supply has commenced and price could not be discovered through market mechanism.

If the actual price at which any producer supplies to any consumer happens to be higher than the one arrived at by above methodology, then the higher price shall be reckoned for the Government take.

In the eventually of applying the Committee's recommendations, Director General, Directorate General of Hydrocarbons (DGH) and Director, Petroleum Planning and Analysis Cell (PPAC) shall jointly calculate and determine the valuation based on Committee's recommended methodology.

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