KOLKATA (miningweekly.com) – The Indian government has started work on shifting from administered price for natural gas to a free pricing regime, but the process is to be spread out over three years.

According to officials, NITI Aayog (National Institute for Transformation of India Commission) has already submitted a working paper advocating freeing natural gas from government-administered pricing and that a final proposal will be put up for approval of the federal Cabinet of Ministers.

However, the current thinking within the government is to phase out the process of freeing natural gas pricing over a period of three years. During these initial three years, government and private oil exploration and production (E&P) companies will be permitted to sell a fixed pre-determined volume of natural gas at negotiated price with their customers, while the balance volume produced to continue to transacted at government determined price.

Under the present administered pricing regime, the government announced natural gas prices sold by E&P companies, twice a year based on average price of the previous six months at global gas trading hubs. Currently, natural gas as per the government formula was pegged at $3.36 a million metric British thermal unit.

However, E&P companies are permitted freedom to price their gas production in select cases like from small and marginal gas fields , deep-sea field and  fields designated at ‘difficult’ by the government.

The government is concerned about a falling trend in domestic natural gas production, which dipped 0.4% during November 2018 at 2.80-billion cubic meters and fells that offering pricing freedom will encourage private E&P companies, like Cairns India and Reliance Industries, to increase production from their existing assets.

NITI Aayog in its paper argues that under-exploration of existing assets by private operators could only be addressed if the latter are assured remunerative market determined prices for their production.

However, even as the government has initiated first moves towards a free pricing regime, a section within the government doubted if the sector reform could be carried to its logical conclusion considering the free natural gas price and possibility of increase in price of energy could become a political issue ahead of Indian national elections scheduled in the next few months.