Cabinet seal on gas price hike

Read more below

  • Published 28.06.13

New Delhi, June 27: The government today approved a near doubling of natural gas prices to $8.4 per million British thermal unit (mBtu) from April 1 next year, a move aimed at reviving exploration but which would also result in a rise in power tariff, urea cost and CNG prices.

This will be the first revision in gas prices in three years.

The Cabinet Committee on Economic Affairs (CCEA), headed by Prime Minister Manmohan Singh, approved the oil ministry’s proposal to price all domestically produced natural gas according to a complex formula suggested by a panel headed by the Prime Minister’s economic adviser, C. Rangarajan.

“The CCEA has approved the Rangarajan panel formula for pricing of gas. It will be applicable from April 1, 2014 and will be valid for five years,” said oil minister M. Veerappa Moily.

The new price will apply uniformly to all producers, be it state-owned firms such as ONGC or private sector Reliance Industries.

Besides, the new price regime will only start from next fiscal, just when the validity of Reliance’s price for KG-D6 gas at $4.2 per mBtu expires. It was previously said that the new rates would apply to regulated, or APM, gas produced by PSUs such as ONGC immediately.

The Rangarajan formula uses long-term and spot liquid gas (LNG) import contracts as well as international trading benchmarks to arrive at a competitive price.

Every dollar increase in gas price would result in $128.5 million (Rs 707 crore) in additional royalty and profit petroleum. Further, every dollar increase in the price of gas will make as much as 10 trillion cubic feet of natural gas economically viable to produce, sources said. India has 47 trillion cubic feet of proven gas reserves.

Prices of natural gas have not been been increased for the past three years as the oil ministry faced stiff resistance from the power and fertiliser ministries. Following the gas price hike, fuel cost of a gas-based power plant is likely to double, and average power cost is seen to rise by 16 paise per kwh.

The power ministry had opposed any hike saying electricity generation at any price over $5 per mBtu was economically unviable. About 9 per cent of electricity generation capacity are based on natural gas. The country’s total installed capacity is about 212,000 MW.

Coal regulator

The cabinet committee on economic affairs today cleared a bill to set up a coal regulatory authority which will have powers to set prices, regulate standards, fix performance norms and adjudicate in disputes between coal miners and other mines or buyers.

The regulator will have one chairperson and four members who will be specialists in their fields. The regulator will have powers to recommend cancellations of mining authorisations in case rules are not followed.

Earlier, the coal ministry wanted producers to decide prices and had written in a fresh clause stating so. However, all other ministries seem to have over-ruled this.

The bill also empowers it to fine errant coal producers, if needed. The authority would also specify standards of performance and operational norms for coal companies and monitor them. Fines may go up to Rs 25 crore.

The coal regulator, to be funded through a Coal Regulatory Authority Fund, will also advise the government on issues such as the auction of coal blocks, though the government will have the right to actually conduct the auctions and take its proceeds.

Currently, other than Coal India and its subsidiaries, coal mines can only be operated by steel mills, power plants and cement factories for their captive use

The government has also cleared the proposal for a 7.64 per cent stake sale in National Fertilisers. At the current market price of Rs 33.90 apiece, the 7.64 per cent stake sale could fetch over Rs 125 crore to the exchequer. At present, the government holds 97.64 per cent stake in NFL.