A panel headed by PM’s Economic Advisory Council chief C Rangarajan has suggested fixing a price of domestically-produced natural gas at an average of international hub prices and cost of imported LNG instead of the present mechanism of market discovery. As per the panel’s formula, the pricing should be based on the average of two prices i.e. price at other producing destinations and the volume-weighted price of US’s Henry Hub, UK’s NBP and Japan Custom Cleared (on net-back basis, since it is an importer).
One price would be derived from the volume-weighted net-back price to producers at the exporting country well-head for Indian imports for the trailing 12 months, while the other would be the volume-weighted price of US’s Henry Hub, UK's NBP and Japan Custom Cleared prices for the trailing 12 months. The panel has further suggested that the formula will apply to pricing decisions made in future, and can be reviewed after five years.
If the recommendations of the Panel are accepted then the domestically produced gas price in the country would get almost double that of the current rate to around $7-8/mmBtu. The panel has further provided for arm’s length pricing and prior government approval of the formula or basis for gas pricing, subject to policy on natural gas pricing. Since no market-determined arm’s length price currently obtains domestically, the report has stated that an arm’s length price thus computed as the average of the two price estimates would apply equally to all sectors, regardless of their prioritization for supply under the Gas Utilization Policy.
In its other suggestions, the panel has stated that the production-linked payment is more transparent and will have less intervention in routine exploration and development activities. It has recommended that an extended tax holiday of 10 years against 7 years presently available for all exploration blocks, be granted for blocks having a substantial portion involving drilling offshore at a depth of more than 1,500 metres. The panel has also recommended extending the timeframe for exploration in future PSCs. Panel head C Rangrajan also clarified that audit is prerogative of CAG and so the power of audit remains with it and CAG had the power to decide the value of the block that would be audited by it directly.
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