Panel recommends pricing domestic gas at global average

Natural gas prices in the economy are expected to rise as a panel led by the Prime Minister's Economic Advisory Council chairman C Rangarajan has asked for linking domestic prices to an average of international hub prices and the cost of imported LNG.

The report submitted to Prime Minister Manmohan Singh has also suggested scrapping the cost recovery clause in production sharing contracts (PSCs) the government signs with exploration companies in future. Instead it has suggested the share of the contractor should be determined through a competitive bid process. The recommendation is expected to avoid tussles like that of the oil ministry with Reliance Industries Ltd where the difference in cost recovery formula has almost led to arbitration.

"The difficulty in gas valuation for determining government's share is that there is no single gas price," the report released to the public on Wednesday noted, pointing to the range of available prices such as long-term import contracts as well as spot market imports. Under the current PSCs, gas is sold at arm's length price discovered through market bids invited from potential users.

"Since no market-determined arm's length price currently obtains domestically and nor is this likely to happen for several more years, a policy on pricing of natural gas has been proposed," it said.

The committee has also said CAG's authority to audit expenses was unquestionable.

"Audit is prerogative of CAG and so the power of audit remains with CAG," C Rangarajan said after the report of the panel, headed by him, was made public.

Power point

* The report submitted to the PM asks for linking domestic prices to an average of global hub prices and the cost of imported LNG

* Also suggests scrapping the cost recovery clause in production sharing contracts with exploration companies

... contd.

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