The Telegraph
Monday , May 5 , 2014
CIMA Gallary

Push for gas price hike after polls

New Delhi, May 4: The government is determined to implement the hike in gas price — put on hold by the Election Commission — immediately after the model code of conduct for the polls ends on May 12.

“When the proposal came to me, I rightly ordered that after the model code of conduct is lifted, (the) price may be announced for the July–September quarter and also for the April–June quarter, according to the approved guidelines by the cabinet,” oil minister Veerappa Moily has said.

The Centre had accepted the new pricing formula for all domestically produced natural gas in June last year.

The formula was notified on January 10 and published in the gazette on January 17.

However, the Election Commission had asked the government to defer its implementation till the general elections.

The new formula, which is expected to almost double the price of gas to about $8.34 per million British thermal unit (mBtu), was to be implemented from April.

Polling will now be completed on May 12, and the oil ministry is expected to announce the price the following day.

Meanwhile, the BJP has said it will like to review the formula if it comes to power. It has indicated that it will look at the issue in a transparent manner by consulting all stakeholders, including consumers.

The fertiliser sector has also raised questions about the formula and threatened to challenge it.

“The price of domestic gas should not be linked to imported LNG price. The formula for the determination of price is very complex, with basic data not available in the public domain. Therefore, the price so determined will invariably be challenged,” Satish Chander, director-general of the Fertiliser Association of India, said.

In a letter to the fertiliser ministry, Chander said domestic gas price “should be in Indian rupees, not US dollars. In fact, domestic gas price in dollars was introduced only five years ago; consequently, the price of domestic gas is rising continuously in rupee terms. The proposed massive rise in gas price will increase the subsidy outgo of urea sales by more than Rs 10,000 crore per annum”.

According to the Rangarajan formula, domestic gas will be priced at an average of the price of imported LNG and international hub rates.

The new rate is applicable to both public and private sector companies.

Reliance case

The new price will have a direct bearing on production from Reliance Industries’ fields in the Krishna-Godavari basin off the Andhra coast (KG-D6 block).

The government had in 2007 fixed a price of $4.20 per mBtu for gas from the KG-D6 block for the first five years of production.

Fields in the KG-D6 block began production on April 1, 2009 and the current price expired on March 31, 2014.

On December 19, the cabinet committee on economic affairs decided that Reliance would have to provide a bank guarantee equivalent to the incremental revenue it would get from the new price because the Dhirubhai-1 and 3 gas fields in KG-D6 had missed production targets.

The surety will be encashed, depriving Reliance of any incremental revenue, if it was proved that the output of Dhirubhai-1 and 3 dropped to one-tenth of the projected 80 million standard cubic metres per day because of the company’s wilful actions and not owing to geological complexities.