Government Allows Reliance, Others To Sell Gas To Affiliates; Marketing Freedom To Benefit Cairn, Focus Energy

In a major boost to firms such as Reliance Industries Ltd., the government on Wednesday allowed affiliate companies to buy gas produced from non-regulated fields as part of giving complete marketing freedom.

The government between 2016 and 2019 gave pricing freedom for all fields except those given to state-owned Oil & Natural Gas Corporation Ltd. and Oil India Ltd. on a nomination basis.

But, there were restrictions on marketing including a ban on affiliates of producers buying the fuel and in some cases, a state nominee being mandated to offtake the gas. This restricted competition kept prices artificially low.

The Cabinet Committee on Economic Affairs headed by Prime Minister Narendra Modi, approved natural gas marketing reforms, Oil Minister Dharmendra Pradhan told reporters in New Delhi.

There will be no change in the price of gas sold by ONGC and OIL from fields given to them on a nomination basis. The rate at $1.79 per million British thermal unit is half of the production cost.

He said the CCEA approved a standard procedure for discovering the price of gas through a transparent and competitive e-bidding as also "permitting affiliates to participate in the bidding process for the sale of gas".

Complete marketing freedom has been provided where production sharing contracts already provide for pricing freedom. This would benefit firms such as Vedanta-owned Cairn and Focus Energy who can now sell fuel to anyone and not necessarily to state-owned GAIL.

"This will add 40 million standard cubic metres per day of production from Krishna-Godavari basin and other areas to the current output of 84 mmscmd," Pradhan said.

He said the ban on producers buying their own gas will continue to prevent manipulations.

But, their affiliates can participate in the auction for the discovery of price and buying the gas, he said.

Last year, Reliance and its partner BP had bid out 5 mmscmd of new gas from their KG-D6 block to firms such as Essar and GSPC.

Reliance and BP were keen to buy the gas but rules did not allow. Now, India Gas Solutions Pvt Ltd, an equal joint venture of Reliance and BP, will be allowed to bid and buy the gas.

"The objective of the policy is to prescribe a standard procedure to discover the market price of gas to be sold in the market by gas producers, through a transparent and competitive process," he said.

He added that it permits affiliates to participate in the bidding process for the sale of gas and allows marketing freedom to certain field development plans where PSCs already provide pricing freedom.

Pradhan said the policy aims to provide a standard procedure for the sale of natural gas in a transparent and competitive manner to discover market price by issuing guidelines for sale by the contractor through e-bidding.

"This will bring uniformity in the bidding process across the various contractual regimes and policies to avoid ambiguity and contribute towards ease of doing business," he said.

He, however, said re-bidding will be done in case only the affiliates participate in the auction.

"These reforms will build on a series of transformative reforms rolled out by the government in the past several years," he said.

In February 2019, the government gave ONGC and Reliance Industries pricing and marketing freedom for yet-to-be-developed discoveries and agreed to levy a lesser royalty in case of state-owned firms raising production from existing fields.