The Telegraph
Saturday , August 23 , 2014
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Panel to clear gas haze

New Delhi, Aug. 22: The government has set up a panel of secretaries, which will hold consultations with stake holders on the contentious gas price issue and submit a report in about three weeks.

“The committee will comprise secretaries of power, fertiliser and expenditure, while the additional secretary in the oil ministry will be a member secretary in the committee,” Rajive Kumar, additional secretary in the oil ministry, said.

“It (the gas pricing) will be re-examined comprehensively and we will have consultations with major stakeholders,” Kumar said, referring to the producers and buyers.

The panel, which is scheduled to hold its first meeting on Monday, hopes to work out in two to three weeks a price mechanism, which could then be submitted to the cabinet.

“The timelines have already been drawn (by the cabinet) and so the report will be submitted within a few weeks,” Kumar said, adding the mandate of the committee is to “review” the pricing mechanism.

The former UPA government had in January this year notified the Rangarajan formula for implementation from April 1, but the general elections were declared before a new rate could be announced. The price revision was then deferred by three months on the advice of the Election Commission.

On June 25, the Modi government put this off by another three months pending a comprehensive review as both the Parliamentary Standing Committee on Finance and the Standing Committee on Petroleum had made adverse comments on the formula and sought a review of production costs before deciding the new rates.

The Rangarajan panel had proposed that all domestic gas be priced at an average of liquid gas (LNG) imports into India and the rate prevalent in the US and UK trading hubs as well as LNG imports into Japan.

This would have led to the doubling of domestic gas price to $8.4 per million British thermal unit (mBtu) in April and to $8.8 for the current quarter.

Earlier this month, oil minister Dharmendra Pradhan had told Parliament that a decision would be taken keeping in mind the interest of investors and the public and a new formula announced. Till then, the $4.2-per-mBtu price will continue.

The parliamentary standing committees on finance and petroleum had called for a review of the formula suggested by the Rangarajan panel, saying the price should have some linkage with the cost of production.

According to the oil ministry, the cost of gas production varies between $1.86 per mBtu and $4.31 per mBtu but a cost-plus price would be perceived negatively by the investors.

The gas price hike was deferred as the doubling of rates would have led to an increase in the cost of urea, power and CNG.

Every dollar increase in price will lead to a Rs 1,370-per-tonne rise in the cost of urea production and a 45-paise-per unit increase in electricity tariff (for just the 7 per cent of the nation's power generation capacity based on gas).

Also, there would be a minimum of Rs 2.81-per-kg increase in CNG price and a Rs 1.89-per-standard-cubic-metre hike in piped cooking gas.

The increase in gas price would be a windfall for the government — about $2.08 billion (Rs 12,900 crore) from additional profit petroleum, royalty and taxes accruing from doubling of gas rates, the ministry estimates.