Gas price may go up by 50%

New Delhi: A four-member committee of secretaries has submitted its report on new gas pricing mechanism, prescribing a rate much lower than the doubling of price approved by the previous UPA government. According to the top official, the report was submitted on Tuesday.

The Government had last month constituted a committee comprising the secretaries of power, fertilisers and expenditure, with the Additional Secretary in the Oil Ministry as its Member Secretary, to make amends to a formula notified in January that doubled the gas price to $8.4 per mmBtu.

The official said the report will be reviewed in the Oil Ministry before a note is moved to the Cabinet.

Though the contents of the report have been kept secret, the official indicated that the price increase may be around 50 per cent. Most of the domestically produced gas is currently sold at $4.2 per mmBtu.

The panel has tried to strike a balance between the demands for a market linked rate by gas producers to make marginal and deep-sea fields economically viable, and consumers in the power and fertiliser sector, who have said they cannot afford any rate higher than $5.

Though the Government had said the new gas price would be announced by September-end, there are indications that a decision may be put off until the completion of Assembly polls in Maharasthra and Haryana in mid-October. Any increase, even of $2 per mmBtu, will lead to a hike in CNG prices for automobiles, something the ruling establishment does not want on the eve of State polls.

Industry sources said the previous UPA Government had notified the Rangarajan formula in January but before a rate could be implemented from April 1, general elections were announced and the Election Commission sought postponement of its implementation.

Since elections to the Maharashtra and Haryana Assembly have already been announced, a deferment can be sought on similar grounds. An increase in gas price would have led to an increase in the cost of urea, power and CNG.

Every dollar increase in gas price will lead to a Rs 1,370 per tonne rise in urea production costs 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 Rs 2.81 per kg increase in CNG price and a Rs 1.89 per standard cubic metre hike in piped cooking gas.

Oil Minister Dharmendra Pradhan had last month told the Parliament that the NDA government decided to review the pricing formula keeping in mind public interest and recommendations of the Parliamentary Standing Committee.

State-owned ONGC in its submissions stated that it needs $6-7.15 to break-even on gas it plans to produce from its most prolific KG basin block and a price between $5.25 and $17.80 per mmBtu to break-even on production planned from seven small and marginal fields in the western offshore.

BP, which partners Reliance Industries in KG-D6 and other blocks, stated that deeper gas fields are not viable at a price of anything less than $10.