The Telegraph
Thursday , June 26 , 2014
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Status quo on gas price

New Delhi, June 25: In a blow to gas producers such as Reliance Industries and ONCG, the Modi government today decided to defer a decision to raise prices by three months.

“The Cabinet Committee on Economic Affairs decided that the comprehensive discussions were necessary on the issue and the guidelines. It was decided that consultations would be held with all stakeholders and it was important to keep public interest in mind. Therefore, the CCEA has deferred this issue for a period of three months,” oil minister Dharmendra Pradhan said after the cabinet meeting.

He said the current rate of $4.2 per million British thermal unit (mBtu) will continue till September.

The decision to defer the hike prolongs a torturous exercise to set prices that producers have been clamouring but will seriously inconvenience consumers as prices of electricity and piped gas will go up.

Ever since a panel headed by former RBI governor C. Rangarajan proposed a complicated formula that sets prices by mixing long-term gas rates, spot rates and international trading benchmarks, the exercise has been shrouded in controversy.

The panel announced the formula in December 2012 and it took the cabinet almost six months to approve it in June 2013. The new price was notified almost seven months later on January 20 this year only for the hike to be put on hold by the Election Commission on March 24.

Finance minister Arun Jaitley said the issue was now between the Prime Minister’s Office and the oil ministry, adding the mechanism needs to be reviewed.

Pradhan, who had held three rounds of discussions with Narendra Modi since Friday, did not say if a new panel or a ministerial group will be constituted for the review.

Law minister Ravi Shankar Prasad said “the matter needs extensive consultations keeping the public good in mind with all the stakeholders. The new government must be given time to take a call on what should be the mechanism (of review)”.

The government said it needed time to decide on the issue as there had been divergent views on the subject.

Senior officials said the oil ministry was mulling various options — such as a higher price only for incremental production after 2013-14; and raising prices only for the fields allocated under the New Licensing and Exploration Policy, which will benefit Reliance but hurt state-owned explorers such as ONGC.

Another option is tweaking the Rangarajan formula by excluding the price of Japan gas and including the Russian one for determining the global benchmarks.