The Cabinet Committee on Economic Affairs (CCEA) had approved Natural Gas Pricing Guidelines 2013 on 27th June 2013 based on the recommendations made by Dr. C. Rangarajan Committee for fixation of price of domestically produced natural gas for a period of five years with effect from 01.04.2014.

After detailed examination and deliberations, the CCEA in its meeting held yesterday has decided the following:

(i) No change needs to be made in the earlier decision of CCEA on including spot prices in computation of gas price;

(ii) Cap or floor on gas prices is not required to be stipulated in the new formula.

(iii) The Contractor would be to allowed to sell D1 / D3 gas at the revised price from 01.04.2014. This sale would be permitted on the basis of a Bank Guarantee (BG) by RIL in favour of the Government.

Subsequent to the CCEA approval dated 27th June, 2013, Ministry of Finance (MOF) vide OM dated 4th July, 2013 requested MOPNG to examine the gas price issue including other issues pertaining to KG-DWN-98/3 block. Further, the Parliamentary Standing Committee on Finance in its Seventy-Fourth Report on “Economic Impact of Revision of Natural Gas Price”, raised the following concerns:

i) Government must ensure that the contractor responsible for delivering the major chunk of gas from KG-D6 gas field supplies, delivers the shortfall he still owes as per the Agreement at the old price of $ 4.2 / mmbtu, rather than getting benefit of the new price for the shortfall quantity.

ii) Capping the gas price under the revised price guidelines to prevent windfall profit to the contractors.

The concerns raised by the Standing Committee and Ministry of Finance, have been addressed in the proposal of the Ministry of Petroleum & Natural Gas which was circulated for the CCEA meeting in consultation with the Ministries concerned.

Natural gas pricing guidelines permit revised D1/D3 sales with spot-price inclusion and bank guarantee, without price caps. Natural gas sales from the D1 and D3 fields are permitted under the revised pricing framework that retains spot-price inclusion and omits any price cap or floor; contractor sales at the revised price are authorized from the start of the new pricing period on the basis of a bank guarantee provided by the contractor to the government to secure those sales.