GAIL clarifies its gas sale accord with ONGC

Our Corporate Bureau
06 January 2006

GAIL India Ltd has refuted as "factually incorrect" the media reports stating that the petroleum ministry has cleared the gas sales agreement between GAIL and ONGC. As a result of this, GAIL could suffer losses of up to Rs 200 crore over the entire fiscal on account of the pricing in its gas sale agreement (GSA) with ONGC.

GAIL has clarified that as per the 'gas pricing order', the government would take a final decision on the producer prices applicable to ONGC based on the recommendations of the tariff commission, which had not yet submitted its recommendations on the applicable producer price for ONGC. The tariff commission's recommendations would then require cabinet approval prior to coming in to force.

Accordingly, GAIL says reports of a pricing mechanism based on a differential price for C2+ fractions in the natural gas supplied by ONGC to GAIL has also not been approved by the cabinet.

GAIL has also clarified that the price of natural gas supplied to IPCL's gas-based petrochemicals plant by the ONGC led Panna-Mukta-Tapti (PMT) consortium, is also not based on any differential price for C2+ fractions.

In December 1990, as per the directives of the ministry of petroleum and natural gas to transfer the marketing of natural gas from ONGC to GAIL, the two companies had signed a MoU for the transfer of natural gas marketing responsibilities from ONGC to GAIL. In October 1999, both PSU companies mutually extended the MoU for another 15 years, making it valid till 2014.

This MoU provides for the execution of a separate agreement for sale / purchase of natural gas from ONGC to GAIL and accordingly, a gas sales agreement is under negotiation between the two.