Sunday, February 16, 2014

Hue and Cry on Natural Gas Pricing



There is lots of hue and cry on natural gas pricing these days -
If we try to understand it in simple terms, and forget Rangarajan Committee and their nuances for a while - without prejudice, India shouldn't pay International price for gases from its own Oil wells. Reliance is given the contract for getting gas out of oil wells and processing it.
When India pays 12$ per mmBtu or so to foreign gas suppliers, it actually pays for the "gas". This means this 12$ for them is Gas Cost price + Processing cost + Their Profit::Per unit. The same doesn't hold true for Reliance. Gas is of Govt not Reliance's, and they are only supposed to be paid for the processing cost plus their profit, not the international price that Rangarajan committee recommends. Paying International price to Reliance would only mean that Reliance is the owner of gas, which they are not. Processing fee for Reliance, according to their own submission, is just $1 per unit. One can't be given 700% profit.
If India needs to pay international price for gas from its own wells then what is the point in owning them.
It is like I want a well in my field(for water) and I give a well digger the contract but the digger starts charging me for the water including its labor charge.
C Rangarajan is not God that whatever his team suggest should be the final word.
 

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