Kelkar panel suggests market-linked gas pricing

'Market-driven pricing will encourage domestic exploration & production'

To make new exploration and production activities viable, a committee under former finance secretary Vijay Kelkar has recommended market-linked pricing for domestic natural gas. The suggestion comes amid ongoing consultations by a committee of secretaries on a new gas-pricing formula.

"Natural resources should be priced at the highest price possible in the market, based on market-determined pricing. This will ensure energy security for the country by encouraging domestic exploration and production, efficient use of the resource and reduction in the import burden," the panel said in a consultation paper given to the petroleum ministry. The panel has invited stakeholders to voice their views on various aspects of the paper.

The committee, set up in 2013 to "prepare a road map for enhancing domestic production and sustainable reduction in import dependence by 2030", had brought out its first report in January. According to it, market-driven prices for gas will create a gas market in the country by increasing supply. Natural gas prices should be free from government intervention, it said.

"Market-determined gas pricing should apply to all forms of gas, irrespective of the source. As India is likely to be a net importer of hydrocarbons, market-governed pricing for gas can be implemented by the end of the 12th Plan period or the end of the new pricing policy under deliberation," the panel said.

In the interim, the government should develop transnational gas pipeline infra to connect demand and supply centres across the country, frame guidelines for effective regulation through the Petroleum and Natural Gas Regulatory Board and develop additional gas sources like coal-bed methane and shale, besides encouraging trading in spot and future contracts for gas, it suggested.

It suggested till market-linked prices were arrived at, the difference between market and subsidised prices of gas should be reduced, in line with fiscal-consolidation initiatives.

Deliberating on subsidised sales, the panel noted it was unfair to supply natural gas at artificially low prices to all consumers, including those who could afford to pay higher prices, to support the priority sectors of power and fertilisers. Priority sectors could be supported by the government, which would get more taxes and royalty from a higher price, owing to transparent and targeted subsidies, the panel said.