The ministry for petroleum and natural gas has proposed linking natural gas prices to 100 per cent fuel oil parity from April 1, 2002.

The note says that if 100 per cent fuel oil parity is achieved, at $ 18 a barrel of crude oil price, the basic consumer price will rise to Rs 3,968 per thousand cubic metres from the current ceiling price of Rs 2,850 per thousand cubic metres of gas.

If the proposal is accepted, in the case of the fertiliser sector, the gas cost will go up from the current level of 51.9 per cent fuel oil parity to 63.8 per cent, and for the power sector, the increase would be from 42.9 per cent to 55.2 per cent.

The petroleum ministry has said the proposal is in line with a Cabinet decision of September 1997 which had approved the linkage of the consumer price of natural gas to the international price of fuel oil with the linkage increasing from 55 per cent in 1997-98, to 65 per cent in 1998-99, and to 75 per cent in 1999-2000. The Cabinet had decided that the matter should be reviewed in 2001-02.

The ministry has proposed that there should be no floor and ceiling prices, and for the fertiliser sector, subsidy may be provided in the Budget in such a manner so as to phase it out by March 2004. This would ensure that with the import of liquefied natural gas (LNG) by Petronet LNG by that time, the impact of a hike in the market price of gas may not be felt by the fertiliser sector.

However, the department of expenditure has suggested that the gas price should be hiked at a flat rate of Rs 600 per year for urea units till the market determined price is reached.

Rejecting this proposal, the petroleum ministry said that by this method, only the producer price will be affected which may not be desirable as it will be a disincentive to producers.

Other consumers, according to the petroleum ministry, would also demand that similar reduced prices be made applicable to them.