Facts for Prelims (FFP)
Source: IE
Context: Union Cabinet has changed the pricing regime for domestic natural gas under the ambit of the administered price mechanism (APM)
About APM:
- APM applies to the pricing of gas produced by legacy fields (old Oil fields awarded to ONGC and OIL before 1999, when auctioning started)
- APM gas accounts for about two-thirds of India’s natural gas production,
| Criteria | Old Pricing System | New Pricing System |
| Application | APM gas fields | Nomination fields of ONGC/OIL. New Exploration Licensing Policy (NELP) and Pre-NELP Block |
| Pricing Formula | ‘Modified’ Rangarajan formula since November 1, 2014 | Indexation to the price of imported crude oil |
| Price Determination Frequency | Quarterly | Monthly |
| Price Calculation | Based on the cost of production, returns, and a notional price of imported LNG | 10% of the monthly average of the Indian crude basket |
| Price Ceiling and Floor | No floor or ceiling | Subjected to a floor and ceiling price that remains unchanged for 2 years |
| The premium for Gas from New Wells | No premium allowed | 20% over APM price for gas produced from new fields |
Advantages: The new pricing formula will help stabilize the prices of gas, encourage investment into the Gas based economy, help reduce prices of fertilizers, help reduce the government’s subsidy burden
For Kirit Parikh’s panel recommendations on gas pricing: Click here
