The Hindu : Business : Panel report on gas pricing

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Saturday, Jun 09, 2007
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Panel report on gas pricing

Special Correspondent

Competitive bidding process suggested for discovering market price

NEW DELHI: In a significant development, the Ministry of Petroleum and Natural Gas on Friday accepted the report of the committee constituted to formulate transparent guidelines for approving the natural gas price formula, the basis for giving Government approval under the production sharing contracts.

The committee, which was constituted by the Ministry in August 2006, was headed by the Joint Secretary and the Financial Adviser, Ministry of Petroleum and Natural Gas, and had the Director General, Directorate General of Hydrocarbons (DGH), and joint secretaries concerned as other members.

The committee has recommended that in all situations, where a price discovery through competitive bidding is possible, there should be no need to apply any other principle for valuation of gas.

Further, it has stated that in the absence of a market determined price, it may be done based on the price in the most recent competitively determined contract in the region duly indexed to the present. Indexation should be done as per provisions of the market determined reference contract.

The committee has noted that each contract, normally, has a price review clause every five years. If the price stands reviewed as per the reference contract that may become the new reference price.

For interim periods, the committee has recommended that indexation may be linked to percentage increase in price of the cheapest liquid fuel, that is, furnace oil.

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