The Telegraph
Monday , April 21 , 2014
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Gas price spoiler lurks

New Delhi, April 20: Subsidies in the wake of a higher price of natural gas are estimated to be more than revenues from the hike, raising the possibility of the pricing impasse persisting even after a new government takes charge next month.

Gas prices were expected to double from $4.2 per million British thermal unit (mBtu), based on the Rangarajan formula, from April. The hike had to be put on hold on the orders of the Election Commission, which said the matter was sub judice.

However, calculations by the oil ministry on the subsidy impact of the hike could force the new government to review the issue.

According to the ministry, the additional subsidy burden for every $1 increase in price will be Rs 2,233 crore per annum for the fertiliser sector.

Similarly, the subsidy to power units will be Rs 3,457 crore per dollar of hike.

On the other hand, additional revenue to the government from royalty and profit petroleum will be Rs 706 crore from every dollar increase in price.

Officials said “as the outgo in additional subsidy will be higher than revenues for the government, those who come to occupy the seat next month will have to take a call on continuing with the formula or have a relook at it”.

While accepting the Rangarajan formula for the new gas price, finance minister P. Chidambaram had stated that the “Cabinet Committee on Economic Affairs has only fixed the output price of gas. We still have to fix the input price of gas… will do that in course of time”.

The fertiliser and power ministries have been making a case for cheaper prices.

The BJP has indicated that it will review the price issue in a transparent manner by consulting all stakeholders, including consumers. Narendra Taneja, BJP’s national convener of the energy cell, said, “If we come to power, we would have to look at all the facts, all the realities on the ground, while keeping the interest of stakeholders in mind — in particular consumers.”

In the budget for 2013-14, the finance ministry provided Rs 21,000 crore as subsidy for urea, which was revised to Rs 26,000 crore. In the interim budget for this fiscal, the ministry has allocated Rs 31,000 crore.

Domestic production of urea is around 22 million tonnes, while consumption is estimated at 29 million tonnes.

Reliance Industries supplies 12-13 million metric standard cubic metres of gas per day (mmscmd) to 16 fertiliser units. It produces less than 15 per cent of domestic output and is allowed to sell gas from the Krishna Godavari basin only to customers identified by the government. Reliance reported on Friday that revenues from the oil and gas business fell 26.7 per cent to Rs 6,068 crore in the last fiscal from Rs 8,280 crore in the year-ago period.

The power ministry, making a case for lower price, had said the average cost of gas-fired electricity will go up to Rs 6-7 a unit from Rs 3.5-5, making power very costly for state boards selling to consumers.

At the current price of $4.2 per mBtu, power plants pay $5.6-$6.5 per unit after adding VAT and transportation charge. This will rise to $10 per unit once the new formula, based on prices at global gas trading hubs, kicks in.