Liquefied Natural Gas (LNG) is available in the open market for a price for US $7 per MMBTU [1 million BTU (British Thermal Unit)], but India buys it for an added price – US $ 12 per MMBTU.
This price difference occurred due to a blunder by Indian officials while signing the contracts for the purchase of gas.
Petronet, a government-owned company, imports LNG to the country. The company has been involved in irregularities not only during signing of contracts but also in controversial decisions made when appointing the highest paid officials.
Petronet recently made major changes to appoint a Managing Director, who was reportedly selected on a VIP’s recommendation.
According to an ex-official of the Petroleum Ministry, “A core energy company is being run like a grocery shop. Politicians who cannot even define LNG are interfering in the recruitment of the highest officers of the company.”
The financial irregularities in gas purchase contracts have cost the nation tens of billions of dollars.
Petronet is directly governed by Union Petroleum and Natural Gas Ministry. For bleeding the country’s economy due to the contracts signed in vested interests, Petronet is now being investigated for irregularities by a committee along with CVC.
India is now paying almost double the amount to obtain LNG; and the government’s attempts to renegotiate have failed.
“Mistakes have been done while we were signing the contracts with RasGas. Now how one can reverse or change the terms and conditions of the contracts?” asked a former Secretary of the Union Petroleum Ministry.
Some of the irregularities of Petronet include:
- Accepting an unsolicited offer from RasGas of Qatar of $16-24 per barrel despite Petronas of Malaysia giving an offer of higher linkage to coal and oil prices
- Renegotiating a price bid with RasGas in 1999 without approaching the competing tender bidder, Petronas
- Coining a new formulation in long-term LNG contract – buying LNG on take-or-pay basis at a fixed price at the mid-point of the quoted floor and the cap for first 5 years; then an annual increase of 33 % for each of the next 5 years
- For the balance 15 years (of a 25 year contract), LNG price was linked directly to average crude oil price in the preceding 5 years without any floor or cap.
- The net value of payments in the first 10 years is, thus, 19 % higher than under the original RasGas bid.
- If the contract hadn’t been changed, the price of LNG from Qatar would be $3.04 per MMBTU for 25 years.
- Global LNG rates have fallen and fuel is now available at $7, but Petronet contracts ensure that India pays a steep price.
- Petronet also switched from buying rich gas (which also produces petrochemicals and cooking gas) to buying lean gas (which can only be used as fuel).