Govt rules that GAIL cannot charge gas marketing margin

10-Mar-06

The government has ruled that state-run gas firm GAIL (India) Ltd cannot charge marketing margin on supply of natural gas. This is a definite relief to Reliance Group firm IPCL. A ministry order states that "In terms of the gas pricing order dated June 20, 2005, GAIL is not entitled to levy any marketing margin on any category of consumers for supply of APM (government regulated) or JV gas." This order follows Indian Petrochemicals Corp Ltd (IPCL)'s petition to the ministry against GAIL's notice to terminate gas supplies unless marketing margins were paid. The ministry's order stated "in the gas pricing order dated June 20, 2005 effective from July 1, 2005, the government has enunciated a dual pricing regime for different categories of consumers, which is Rs 3,200 per thousand cubic metres to power, fertiliser and court-mandated/small consumers and the market-regulated price for all other consumers". GAIL had demanded from IPCL a marketing margin of Rs 222 per thousand cubic metres on the government-administered or APM gas, which it was supplying to IPCL's plants at Baroda, Gandhar (Gujarat) and Nagathone (Maharashtra). GAIL had last month stated that "IPCL has not signed the revised gas supply agreement with GAIL after the government pricing order which came into effect from July 1, 2005. The government's gas pricing order does not provide any marketing margin over and above the transportation tariff being realised by GAIL on APM gas since beginning and on gas produced by joint venture fields, which is being supplied through GAIL, since 1997. The price of APM gas, administered by the government, was recently revised with effect from July 1, 2005. As per the pricing order, the price of APM gas had been fixed at Rs 3,200 per thousand cubic metres and transportation charges of Rs 1,150 per thousand cubic metres. The price of about 6 million standard cubic metres per day of gas from Panna/Mukta and Tapti fields, which was being procured by GAIL for supply to power and fertiliser sector, had been pegged at 3.86 dollars per million British thermal unit (about Rs 7,050 per thousand cubic metres). APM gas has been allocated to the consumers by the government and GAIL has been performing the function of a transporter. The activities of transportation and marketing are not separate.