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Public sector gas price hike in pipeline

New Delhi, Dec. 24: The government is planning to increase the administered price of gas to $2.5 per million British thermal unit (mBtu) from $1.9, a move that will raise production costs of fertiliser and power units.

This is almost half of the floor price fixed by the government for gas produced by Reliance Industries from the Krishna-Godavari basin.

Officials said the petroleum ministry was considering the recommendations of the commerce ministry’s Tariff Commission, which has favoured an increase in the price of gas. The issue could come up before the cabinet in early January.

Earlier, the cabinet committee of economic affairs had stated that it would consider the proposal for a revision in prices if the commission proposed such a move.

The empowered group of ministers on gas pricing, formed to decide the price of Reliance’s gas from the Krishna-Godavari basin, had also suggested a rise in the administered price of gas.

On the basis of the recommendations of this group, the government had fixed the floor price of gas from the Krishna-Godavari basin at $4.20 per mBtu.

Senior ONGC officials said they would like the government to raise the price to $2.5 per mBtu from $1.9.

The last revision was done in June 2006, almost a year after the government told the petroleum ministry to raise prices on an ad hoc basis but in a phased manner, to bring them on a par with market prices over the next 3-5 years.

If approved by the cabinet, the hike would lead to a 20-paisa rise in power costs in states such as Gujarat, Delhi, Andhra Pradesh and Tamil Nadu.

Most of the gas-based power plants in the country are in these states.

Existing laws allow higher fuel costs of power companies to be passed on to consumers. Around 10 per cent of the power generated in India is from gas.

The outgo on fertiliser subsidies is estimated at Rs 45,500 crore in the current year, and any increase in the price of gas will push up the subsidy bill. Higher subsidies recently came for sharp criticism from Prime Minister Manmohan Singh.

Of the 90 million standard cubic metres per day (mscmd) of gas available in the country, around 53 mscmd is priced under the administered price mechanism.

Of this, around 48 mscmd is produced by the Oil and Natural Gas Corporation and 5 mscmd by Oil India Ltd.

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