Business Standard ( 16 March 2017 ) carries following news
report :
Cabinet clears policy offering pricing freedom for
coal bed methane gas
The Cabinet Committee on Economic Affairs (CCEA) has given
its approval for marketing and pricing freedom to the coal bed methane (CBM) contractors to sell the CBM at arm's length price in the domestic market.
“While discovering the market price for arm’s
length sales, the contractor has to ensure a fully transparent and competitive
process for sale of CBM with the objective that the best possible price is
realised for the gas without any restrictive commercial practices,” said a CCEA press release.
CBM contractors have also been permitted to sell the CBM to its any affiliate, in the event contractor cannot
identify any buyer. Royalty and other dues to the government, however, will be
payable on the basis of Petroleum Planning & Analysis Cell (PPAC) notified
prices or selling prices, whichever is higher.
The policy is expected to incentivise
the CBM operation in the country to boost gas production and will generate economic activities
which in turn will be beneficial for creating more employment opportunities in CBM operations and related activities.
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While
welcoming this policy in respect of CBM , instead of taking up the question of
just one natural resource at a time , I hope the government will soon come out
with a COMPREHENSIVE POLICY on EXPLORATION / EXPLOITATION of all NATURAL
RESOURCES , which answers the questions raised by
me some 3 YEARS back ( read following blog ) :
Sunday, 16
February 2014
This is with reference to the controversy surrounding the pricing of
KG-6 gas of Reliance , which started with $ 2.4 , is currently $ 4.2 and slated
to rise to $ 8.4 / unit , from April 2014
Writing in yesterday's Times of India , ( Swaminomics ) , eminent
economist , Swaminathan Anklesaria Aiyar , made following points :
* Reliance ( KG - 6 )
accounts for only 10 % of the gas production in our
country .
Balance 90 % is by Public Sector Companies such as ONGC etc
* Hence , any increase in
selling price will mostly benefit government itself
( Any idea ,
what will government do with this windfall ? )
* Price - hike envisaged
is recommended by a committee headed by Mr C
Rangrajan ( - implying , infallible / sacrosanct ? )
* By introducing price
control on gas , " India's name is mud globally , and
top
exploration companies now avoid India "
* An economic rule of
thumb is that " traded Commodities " should be
priced on
par with the import price ( my question : irrespective of the
actual cost
of production in India ? )
The
Rangrajan price of $ 8 / unit , is well below the import price
Not being an economist , I am
confused !
May be Mr Aiyar can dispel my
following doubts :
* By taking out of our
own soil ( or sea ) , does gas become a " traded
commodity " ? - even if entirely sold in India ?
* Is KG-6 gas a
" Natural Resource " which belongs to the Nation - and
not to Reliance ?
* Is Reliance the
" Owner " of the gas or a mere " Contractor " ?
* Would Mr Aiyar ,
want the Central Government to extend the same logic
to
other " Natural Resources " ( belonging to the country ) , being dug
out
from the earth ( by private companies ) , such as :
* Oil / Coal / Shale Gas etc ( Fossil Fuels )
* Ores of Iron / Copper / Zinc / Aluminum etc
* Trees ( timber ) that grow in our jungles
* Any number of minor minerals / chemicals
Should
these too , be treated as " Traded Commodities " , whose local
selling prices must be same as Imported prices ?
* What about the
air / wind that blows freely over our land ?
Does
it belong to the Nation or not ?
Or ,
does it belong to the Companies setting up WIND FARMS , to
generate electricity ?
Should
such power be " Price Controlled " or not ?
* What about the
Sunlight that falls on our vast land ?
Who
does it belong to ? To our government or to the companies setting
up
mega Solar Power Projects ?
Should there
be a price control on such power - produced , using a National Resource
?
* What about the
hydro - power generated by private sector companies
from the water
flowing in our Country's rivers ?
Does - or
does not - that water belong to the Nation ?
Should not
such power be price - controlled ?
* Tomorrow , if a private
sector company ( or a consortium of Indian
Companies , in joint venture with foreign companies ) , invest Rs 1 Lakh
Crores
, to build the 22 Km long Kalpsar Dam across the Bay of Cambay
in
Gujarat , and generate 10,000 MW of power from Oceanic Tides , -
can they be
allowed to set any selling price ? At International price ?
I suppose ,
it would be next to impossible for them to " Export " such
power beyond
the shores of India !
* Incidentally , what
about the Airwaves ( the 2G / 3G Spectrum ) ?
Is that also
a Natural Resource which belongs to the Nation ?
Having
" licensed " it from the Central Government , can Mobile
Phone companies , set any selling prices for
their services ?
Even with a combined debt of around
Rs 2 Lakh Crores , how are these
Mobile companies ,
able to deliver ( nearly ? ) cheapest mobile phone
services in the
entire World ? May be at 10 % of international price ?
* In ALL of the above -
mentioned cases , should Central Government
carefully
calculate / frequently audit , the " Cost of Production " ?
Then
link the "
Local / Domestic , Selling Prices " to such " Cost of
Production "
allowing certain
pre-determined " Return on Investment " ?
* Even as we agree that
" Export prices " of gas are governed by prevailing
international prices , how come the " Domestic Prices " of gas are
vastly
different in
different countries , ranging from under $ 1 to $ 5 / unit ?
Does this
itself , not prove that , in each country , domestic prices are
linked to their
own local " Cost of Production " ?
* Very often , have we not
exported , food grains , at " Below the Cost " ?
Mr AIYAR ,
You will be doing a great service to
millions of ignoramus like me , by offering your own " Views " on the
points raised above
And , I suppose , since the fall in
production from KG - 6 , is purely and entirely , due to " Technically
Sound " reasons , raising of the selling price to
$ 8 ( or even $ 16 / - ! ) , won't
result in any increase in production !
Time alone will tell !
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FOOTNOTE :
It seems , Oil Minister , Shri Dharmendra Pradhan has taken some of my suggestions into account while announcing auction of 67 Oil / Gas blocks , yesterday
Hindustan Times ( 26 May 2016 ) describes these as follows :
" Spelling out salient features of the policy , sources said the auction will be done on a REVENUE SHARING model, where bidders will be asked to quote the REVENUE they will share with the government at LOW and HIGH end of the PRICE and PRODUCTION
The new REVENUE SHARING REGIME will replace the controversial PRODUCTION SHARING contract ( PSC ) model where oil and gas blocks are awarded to those firms which show they will do maximum work on a block
Also , a single license for exploration and exploitation of conventional and non-conventional hydrocarbons will be issued and operators will have freedom to sell oil and gas on arms length market price , Pradhan said , adding that there would be no cess on crude oil "
------------------------------------------------------------------------------------
FOOTNOTE :
It seems , Oil Minister , Shri Dharmendra Pradhan has taken some of my suggestions into account while announcing auction of 67 Oil / Gas blocks , yesterday
Hindustan Times ( 26 May 2016 ) describes these as follows :
" Spelling out salient features of the policy , sources said the auction will be done on a REVENUE SHARING model, where bidders will be asked to quote the REVENUE they will share with the government at LOW and HIGH end of the PRICE and PRODUCTION
The new REVENUE SHARING REGIME will replace the controversial PRODUCTION SHARING contract ( PSC ) model where oil and gas blocks are awarded to those firms which show they will do maximum work on a block
Also , a single license for exploration and exploitation of conventional and non-conventional hydrocarbons will be issued and operators will have freedom to sell oil and gas on arms length market price , Pradhan said , adding that there would be no cess on crude oil "
17 March 2017
www.hemenparekh.in
/ blogs
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