How the oil ministry justifies KG gas price rise

The Ministry of Petroleum and Natural Gas on Wednesday reiterated before the Supreme Court a rise in the price of gas from the KG basin was necessary to attract investments, saying it was a bona fide decision, based on expert opinion.

It added this wasn’t aimed at benefiting Reliance Industries Ltd alone.

This follows public interest petitions moved by Communist Party of India leader Gurudas Dasgupta and non-profit organisation Common Cause against the proposed steep increase in gas price.

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Image: Reliance Industries Chairman Mukesh Ambani; Photograph: Reuters

The rise has been put on hold due to the Election Commission’s model code of conduct for the Lok Sabha elections.

A Bench headed by B S Chauhan has been hearing the arguments of the government counsel for two weeks.

It is expected RIL counsel Harish Salve will reply to the allegations of Dasgupta and Common Cause next week.

The ministry justified its decision, contending 45-50 per cent of the gas deposits were in high seas and required huge investments.

The success rate of discovery was only 25-40 per cent, it said.

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Image: An oil rig.

If the price was not revised, the country would be paying double the price for imports, said L Nageswara Rao, the ministry’s counsel.

He, therefore, justified the profit-sharing contract with RIL.

He also emphasised the price rise was a matter of policy and a decision related to the New Licensing and Exploration Policy contracts.

Therefore, the court shouldn’t interfere with the policy decision, taken by the government with the help of experts, he added.

The government has said India was self-sufficient in natural gas till 2004, after which it started importing gas from Qatar.

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Image: An oil rig.

In 2011, India became the largest importer of liquefied natural gas, with the power and fertiliser sectors being the biggest consumers.

The pricing mechanism was changed from an administered-price one, in which price was fixed at costs along with return on investment, to a market-determined one.

The change was suggested by a committee headed by C Rangarajan, chairman of the Prime Minister’s Economic Advisory Council.

This decision was taken keeping the circumstances in mind and there was no mala fide intention, as alleged by Dasgupta, the government counsel said.

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Image: Mukesh Ambani addressing the shareholders.