Reliance Industries is facing a 40 per cent cut in the marketing margin it charges on selling its KG-D6 gas to fertilizer and LPG plants after the government notified a ceiling of Rs. 200 per thousand standard cubic meters (scm).
RIL was charging USD 0.135 per million British thermal unit (mmBtu) as margin to hedge marketing risks on sale of its eastern offshore KG-D6 gas. This is over and above the gas price of USD 4.24 per mmBtu.
Pursuant to the Cabinet decision of November 18, fixing a maximum marketing margin that firms can charge on selling all domestically produced natural gas to fertilizer and LPG plants, the Oil Ministry has issued a Gazette notification fixing the levy at “a maximum of Rs. 200 per thousand scm (on Net Calorific Value of 10,000 Kcal/scm).”
The marketing margin being fixed at NCV basis on 10,000 kilocalorie (Kcal) will at current foreign exchange rate translate into a levy of USD 0.79-0.8 per mmBtu, ministry officials said.
Had the government fixed the margin at 8,300 Kcal, the margin would have come to USD 0.85 per mmBtu.
Marketing margin charged on gas produced from state-owned Oil and Natural Gas Corp’s (ONGC) fields is Rs. 200 per thousand scm and will not be changed following the notification.
But for RIL, there will be a 40 percent cut as all of its 11-12 million standard cubic meters per day of KG-D6 gas is sold to fertilizer plants.
The “decision will be effective from the date of Cabinet approval i.E. November 18, 2015,” the notification said.
The Oil Ministry had in December 2013, gave freedom to gas retailers including RIL and GAIL (India) to fix the marketing margin they want to charge on sale of natural gas to consumers other than urea manufacturing units and LPG plants.
It had decided that the government needs to regulate the marketing margin for supply of domestic gas to urea and LPG producers, as the same had implications on the government’s subsidy outgo. Both urea and LPG are subsidised.
GAIL markets gas produced from ONGC fields.
Sector regulator Petroleum and Natural Gas Regulatory Board (PNGRB) was asked to suggest the marketing margin for the same. PNGRB recommended the range of Rs 150-200 per thousand scm.
“In future, escalation in the limit of marketing margin up to Wholesale Price Index (WPI) may be done by the Ministry of Petroleum and Natural Gas itself. The escalation would be subject to the upper limit of WPI inflation prevailing at relevant point of time,” the notification said.
For escalating the marketing margin beyond this limit, the Ministry “would require the approval of Cabinet through Department of Expenditure,” it added.