Natural Gas Marketing Reforms

#GS2 #Governance #GS3 #Economy

The Cabinet Committee on Economic Affairs has approved ‘Natural Gas Marketing Reforms’, taking another significant step to move towards gas based economy.

 

Need 

  • A policy debate on who can participate in an auction to sell gas has raged for about three years after Reliance Industries sold all gas from its coal bed methane field in Madhya Pradesh to itself in an open auction. 
  • The auction, held in September 2017 for gas to be produced until March 2021, prompted an inquiry by the government. In November 2017, the Oil Ministry had found that Reliance violated the government policy by selling gas to itself. The government, however, didn’t cancel the sale of RIL gas.

 

Reforms 

  • The reforms include setting up a new e-bidding platform, prohibiting producing companies from participating in the bidding process and bringing all different fiscal models under the new bidding mechanism.
  • Last year, the government declared that any new discoveries and any gas found within those regions will get pricing and marketing freedom. But, there was a bottleneck in how to implement the system.
  • Now, the Director General of Hydrocarbon (DGH) will suggest an e-bidding platform to producers. It will list all government entities and other credible companies. The DGH will also issue guidelines for the same.
  • Producers will have a choice between different platforms in a transparent public domain akin to how coal, spectrum and mineral auctions take place in the country. While the producing companies themselves will not be allowed to participate in the bidding process, all other players and affiliate companies will be allowed to bid.
  • The government decision to allow a producer’s affiliate to bid for natural gas in an auction comes following similar demand by private producers. Existing production sharing contracts barred affiliates due to conflict of interest.

 

Objective 

  • The objective of the policy is to prescribe standard procedure to discover market price of gas to be sold in the market by gas producers, through a transparent and competitive process, permit Affiliates to participate in bidding process for sale of gas and allow marketing freedom to certain Field Development Plans (FDPs) where Production Sharing Contracts already provide pricing freedom.

 

About the reforms 

  • These reforms in gas sector will further deepen and spur the economic activities in the following areas –
  • The whole eco-system of policies relating to production, infrastructure and marketing of natural gas has been made more transparent with a focus on ease of doing business.
  • These reforms will prove very significant for Atmanirbhar Bharat by encouraging investments in the domestic production of natural gas and reducing import dependence.
  • These reforms will prove to be another milestone in moving towards a gas based economy by encouraging investments.
  • The increased gas production consumption will help in improvement of environment.
  • These reforms will also help in creating employment opportunities in the gas consuming sectors including MSMEs.
  • The domestic production will further help in increasing investment in the downstream industries such as City Gas Distribution and related industries.

 

Significance 

  • The policy aims to provide standard procedure for sale of natural gas in a transparent and competitive manner to discover market price by issuing guidelines for sale by contractor through e-bidding.
  • This will bring uniformity in the bidding process across the various contractual regimes and policies to avoid ambiguity and contribute towards ease of doing business.
  • The policy has also permitted Affiliate companies to participate in the bidding process in view of the open, transparent and electronic bidding. This will facilitate and promote more competition in marketing of gas. However, rebidding will have to be done in case only affiliates participate, and there are no other bidders.
  • The policy will also grant marketing freedom to the Field Development Plans (FDPs) of those Blocks in which Production Sharing Contracts already provide pricing freedom.
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