Parliament panel might oppose Rangarajan formula on gas pricing

The decision is expected to cost Rs 42,000 crore for about 28000 mega watt of power capacity dependent on gas,

The Rangarajan formula on natural gas pricing, cleared by the Cabinet last month, is set to get a thumbs-down from  Parliament’s standing committee on finance.

The panel, chaired by the Bharatiya Janata Party’s Yashwant Sinha, an ex-Union finance minister, is set to clear a report on Friday on the economic impact of natural gas pricing. According to a source, the report is yet to be finalised but the committee opposes the  formula.  

The Rangarajan panel proposes taking an average of the US, Europe and Japanese hub prices and combining this with the net-back price of imported liquefied natural gas (LNG) to establish the sale price of domestically-produced gas.

The Parliament draft says this isn’t realistic enough. It wants a different one, more suited to the current priorities of various sectors. It also wants closer regulation of producers, taking into account the cost of production and other technical parameters. The report might support the finance ministry’s stand, as stated in the latter’s letter to the petroleum ministry early this month, for Reliance Industries to be continued to be paid the current $4.2 a mBtu for having failed to deliver on earlier agreed targets.According to sources, the Samajwadi Party and the Bahujan Samaj Party are supporting the BJP and Left parties in opposing the Rangarajan formula. While, the Congress party members contend such pricing is a government prerogative. The Rangarajan formula is to apply from April 2014 and is set to almost double the price of gas to $8 a mBtu. This is to be reviewed each quarter, based on international pricing.  

The decision is expected to cost Rs 42,000 crore more for about 28,000 Mw of power capacity dependent on gas, while the fertiliser subsidy would zoom by Rs 13,200 crore annually.