Govt raises natural gas price to USD 5.61/unit

Government today approved raising natural gas price to USD 5.61 per mmBtu from November 1 but Reliance Industries will continue to get current USD 4.2 rate till it makes up for shortfall in output from KG-D6 block.
The Cabinet modified the Rangarajan formula approved by previous UPA government to bring down the increase in rates from USD 8.4 to USD 5.61, Finance Minister Arun Jaitley said.
The new formula will be effective November 1 and rates will be revised every six months with the next revision being on April 1.
For RIL's flagging D1&D3 gas fields in KG-D6 block where output should have been 80 mmscmd but is languishing at less than 8 mmscmd, the Cabinet decided the current rates will continue to apply.

Consumers will, however, pay the revised increased price but RIL will get only USD 4.2 with the difference being deposited in an escrow account.
RIL will get the higher rates if it is legally able to prove that it did not deliberately cut production and output fall was a result of geological reasons as it claims.

Higher gas prices would increase the expense of running power stations and fertilizer plants, raising infrastructure and food costs and accelerating the rate of inflation.
Every dollar increase in gas price will lead to a Rs 1,370 per tonne rise in urea production cost 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.
Gas price increase had been deferred on three occasions previously.
The previous UPA government had in June last year approved a price formula suggested by a panel headed by C Rangarajan and re-confirmed it in December 2013 with certain conditions for Reliance Industries' eastern offshore KG-D6 block.