Indian Government in June 2013 formed a committee under the Chairmanship of Dr. Kirit S. Parikh, Former Member of The Planning Commission, to look into the current pricing methodology of petroleum products like High speed diesel, PDS Kerosene and Domestic LPG and suggest a pricing mechanism benchmarked to export parity pricing as well as to suggest a formula for under recovery compensation of Oil Marketing Companies.

The committee submitted its report on 30^th November 2023 and given following recommendations

1. A fixed band of pricing for gas from legacy fields. The committee recommended that India should have completely free and market-determined pricing of natural gas extracted from legacy fields, which account for over 70 per cent of the total natural gas produced in India.
2. The committee suggested linking the price of gas produced by state-owned firms from fields given to them on a nomination basis to imported crude oil prices rather than benchmarking them to gas rates in international markets. State producers like Oil and Natural Gas Corporation (ONGC) and Oil India Ltd (OIL) will be paid a price linked to imported oil but it will have a minimum or floor price of $4 per million British thermal unit and a cap or ceiling price of $6.5.
3. The ceiling rate for this gas from legacy or old fields, called APM gas, will be increased by $0.5 per mmBtu annually.
4. The panel recommended liberalisation of APM price from January 2027 and linking the price to 10% of oil price slope. For HPHT gas panel recommended the removal of the current ceiling price but only from January 2026 ( so that most current HPHT contracts are not impacted).
5. The panel didn’t tinkered with the existing pricing formula for fields in difficult geology such as KG-D6 of Reliance Industries and bp plc.
6. The panel also suggested including natural gas in the one-nation-one-tax regime of GST by subsuming excise duty charged by the central government and varying rates of VAT levied by state governments.
7. To address state concern of loss of revenue, the panel recommended for setting up a mechanism similar to the compensation cess regime that made good for any revenue loss that states incurred by way of giving their right to levy VAT and other taxes on goods and services in first five years of implementation of GST regime from July 1, 2017.
8. The city gas will continue to get top priority in the allocation of APM gas. The sector will be in the ‘no-cut’ category, meaning supplies to other consumers will be cut first in case of a decline in production.

Recent Developments

The government on April 6 2023 amended the domestic pricing model of natural gas in line with the recommendations of the Kirit Parikh committee. Prices of domestic natural gas will now be announced every month, and be pegged at 10 per cent of the international price of the Indian crude basket.

Government has approved a floor price of $4 per MMBtu for the next two years, to cover the cost of gas production by Oil and Natural Gas Corporation (ONGC) and Oil India Ltd.

The committee recommended India should have a free and market-determined pricing for natural gas extracted from legacy fields and remove all caps by January 1, 2027. The government has not given its decision on this recommendation.