Parliament report seeks review of increase in gas price

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Parliament’s standing committee on finance, headed by former finance minister Yashwant Sinha, on Wednesday tabled its report on gas pricing, asking the government to review its decision to increase the prices.

The report, titled Economic impact of revision of natural gas price, has raised doubts on whether a large rise  would at all attract additional investment from home or abroad and relax the supply- side constraint.

Batting for a holistic price, the panel asked the government to ensure that Reliance India Limited delivers for shortfall on production at $4.2 per million British thermal unit (mBtu) rather than getting benefits of the new pricing for previous commitments. Further, it said there needs to be a cap on suggested price under the formulae, as gas producers should not be allowed to reap unlimited gains in the event of an upswing in global prices at the expense of core sectors.

It suggested a comprehensive technical study on cost estimates of gas production, covering the aspects of cost recovery and technical parameters. Stating the rise might not lead to a spurt in investment, the committee recalled that “despite raising domestic well-head price by almost 300 per cent from $1.79 to $4.2 per mBtu, investment in the sector and the country’s gas output have dipped. Doubts have been raised whether the large rise in gas price would at all attract investment from home and abroad.”

It also questioned the rationale for dollar-denominated gas pricing when the revenues are all in rupees and as the country has a chronic adverse exchange rate. It also highlighted the need for consultations with state governments, as they might have to significantly increase power tariffs to cover the higher costs or drastically raise the subsidy expenditure.

Training guns on finance minister P Chidambaram’s idea of fixing of lower input price for certain sectors, it said  this would mean a bloating of subsidies and asked whether the government is prepared for a disproportionately high subsidy outgo.

The Rangarajan Committee had proposed a pricing by taking an average of the US, Europe and Japanese hub and then averaging it out with the netback price of imported liquefied natural gas to give the sale price of domestically-produced gas. This would be applicable from April 2014 onwards. The members of the Congress, along with the Samajwadi Party and the Bahujan Samaj Party, have filed their dissent note on the report.