In an interview Anish De, Chief Executive Officer, AF Mercados EMI says that gas pooling is a possible option and it would definitely help the market tide over some immediate challenges.
For long, the end users of Indian Gas market have been inured to economical gas under the administered price mechanism (APM), with several evident disheartening consequences. The policy approach of "market-based pricing" has created hype in the industry and the repercussions of which will seek to amend the contours of the Gas sector. The prerequisites of such a mechanism are, however, difficult to meet in the present state of our domestic natural gas sector. Whilst domestic gas production has heaved the apprehension over fuel requirements of upcoming power plants, Natural Gas pooling is being looked as a viable option to make up for this dearth and shift towards a much equitable distribution. India has contested many times, yearn for pooling gas with domestic supply to average out costs and supply it to all users at uniform prices. However, the initiative of pool pricing helped stimulate power projects like the Dabhol plant, owned by Ratnagiri Gas and Power.
Question: Is Natural Gas Pooling a viable option in India?
Answer: Natural Gas Pooling is viable in India but the question lies whether it would be acceptable by all stakeholders or not. Furthermore, it works only if we have access to domestic commodity at reasonable prices. Therefore, it all depends on how the domestic gas prices are anticipated to be, if the price goes up further & very fast than the attractiveness of pooling becomes much lesser.
The issues related to pooling are both conceptual/ideological and practical. Among the practical issues the foremost is on taxation. Since Natural Gas is not covered under GST, there needs to be an alternate mechanism so that taxation can be uniform between the sale points. The government have to declare Natural Gas as a declared good, However,, in such case the states are going to lose revenues. These are issues of considerable significance and would require the government to work hard and evolve an acceptable solution.
Question: Which model of price pooling should India adopt?
Answer: Sectoral Pool is the best model as it aims at serving the needs of specific consuming sectors only. It has lesser cross-sectoral impact and hence may be more acceptable.
Question: Will pooling of gas prices lead to market distortions? If yes, how far and what will be the likely impact on Indian gas market?
Answer: There is no market for gas over here as everything is administered and not market driven. Yes, it will lead to some distortions when the market comes in. That is why we need to have a very clear sunset clause. Pooling should be a completely temporary arrangement to accommodate more gas into the Indian energy basket till markets evolve in the true sense and Indian attracts competitively priced gas supplies. It should also be a limited solution for select priority sectors – power and fertiliser.
We also have to look in the context of what is happening on the coal side. Today, coal industry is saying that Coal India Limited (CIL) should pool imported coal and then supply accordingly. This is being proposed to tide over the crisis because the power assets on the ground are not able to generate competitively on the basis of imported coal when a competing asset has a low cost coal linkage or coal mine. On a similar but more extreme basis, a power plant cannot run on imported gas at current prices unless it is pooled.
Question: What are the benefits (financial) of price pooling on the gas producing companies and impact on Indian gas prices?
Answer: Theoretically the producing companies are not affected since they continue to get what they were supposed to. In practice there is a real fear that the gas prices paid to producers would be artificially kept low to ensure that the pooled gas prices are low. This apprehension has to be specifically addressed, else producers would continue to oppose pooling. As I have also mentioned, there needs to be a clearly spelt out sunset clause with a defined time frame, else the risk of market distortion is far too high. Pooling, without a sunset time frame would then instead stymie gas markets.