Press Releases
(New Delhi, January 5, 2006)

Gas Sale Agreement between GAIL and ONGC

New Delhi, January 5, 2006 Today, a certain section of the media has carried a news item in respect of the Gas Sale Agreement (GSA) between GAIL and ONGC and has also made references to the pricing of natural gas supplied by ONGC to GAIL.

The news item is ill-informed and misleading. The statement made in the news item that GAIL could take a hit of up to Rs. 200 crore over the entire fiscal in this regard is devoid of facts and is completely baseless.

The following is clarified in this regard:

1. In December 1990, as per the decision of the Ministry of Petroleum & Natural Gas (MoP&NG), a MoU was signed by GAIL and ONGC, for the transfer of natural gas marketing responsibilities from ONGC to GAIL. In October 1999, both the companies mutually extended the MoU for a further period of 15 years and the MoU is valid upto 2014. The MoU provides for the execution of a separate agreement for sale/purchase of natural gas from ONGC to GAIL and accordingly, a GSA is under negotiation between the two companies. The statement carried in the news item that the Ministry has ‘cleared’ the GSA between GAIL and ONGC is factually incorrect.

2. As per the MoU, which is currently in force, the transfer price of gas from ONGC to GAIL would be as per the decision of Government of India from time to time. The current pricing of gas is governed by the Government’s Gas Pricing Order dated 20th of June 2005, which is approved by the Cabinet. As per this prevailing pricing order, the gas consumed by the Gas Processing and Petrochemical Plants of GAIL is to be supplied at market related price, subject to a ceiling price of US $ 3.86 / MMBTU. Accordingly, GAIL is paying the full ceiling price of US $ 3.86 / MMBTU, for the gas consumed in its Plants and therefore, the statement carried in the news item that GAIL refused to accept any change in pricing because it would erode its margins is ill-informed and misleading.

3. Further, as per the Government’s Gas Pricing Order, the Government will take a final decision on the producer prices applicable to ONGC based on the recommendations of the Tariff Commission. It is understood that the Tariff Commission has not yet submitted its recommendations on the applicable producer price for ONGC, which would subsequently require Cabinet approval to come into force. Therefore, reference made in the news item to a pricing mechanism based on a differential price for C2+ fractions in the natural gas supplied by ONGC to GAIL, is not as per the Cabinet approved Gas Pricing Order. Incidentally, the price of natural gas supplied to the Gas based Petrochemicals Plant of IPCL, by the ONGC led Panna-Mukta-Tapti (PMT) consortium, is also not based on any differential price for C2+ fractions.