COMMENT – India’s propitious boost to the natural gas sector

naz-22.jpg

The introduction of the ‘Natural Gas Marketing Reforms’ with the objective to prescribe standard procedure for e-bidding to discover market price of gas to be sold by the gas producers is a propitious move by the Cabinet Committee on Economic Affairs.

In as much as the announcements have been reformative they are also clarificatory in nature. The new reforms permit the affiliates of the gas producers to take part in the price discovery process and further allows marketing freedom to certain Field Development Plans (FDPs) where Production Sharing Contracts already provide pricing freedom for natural gas.

Jay Cheema, Partner, Cyril Amarchand Mangaldas,

It is believed that this action will help prominent gas producers such as ONGC, Reliance Industries and Vedanta. Though the block producers will not be allowed to directly participate in the bidding process, their affiliate entities are eligible to take part in the price discovery process which will be managed by the Directorate General of Hydrocarbons (DGH). It is to be sold at arm’s length through a transparent and competitive process. 

This measure unshackles the prohibition under some earlier contractual regimes. This is an affirmative stride before developing a gas trading hub in the country, and is expected that this new pricing mechanism will provide the necessary impetus in the accessibility of natural gas domestically.

Furthermore, this will bring uniformity in the process prevalent across various contractual regimes and policies which will help to cater the uncertainty in the natural gas sector.

Additionally, this step will promote fair competition, thereby providing a level playing field in the gas market. 

These reforms are in line with the Government’s aim to reform, strengthen and encourage investments in this sector, thereby paving the way for a gas based economy in the long run.

This move is expected to benefit to address the environmental concerns of India which are increasing at an alarming rate as the price of the gas in the market will be comparatively cheaper. 

It is anticipated that people will prioritise gas over the conventional fuel for their transport purposes because of its cost efficiency.

In spite of the fact that these developments are well intentioned, but only time will tell how far they succeed in furthering the underlying  objectives of improving ease of doing business and whether these will ensure sustainability for the long run domestic production, and building an Atmanirbhar Bharat by reducing dependency on imports by encouraging investments in domestic production.

Leave a Reply

Your email address will not be published. Required fields are marked *