Panel submits report on new gas pricing formula

A four-member committee of secretaries has submitted its report on a new gas pricing mechanism, prescribing a rate much lower than the doubling of price approved by previous UPA government.

"The report was submitted on Tuesday," a top official said.

The government had last month constituted a committee comprising of secretaries of power, fertilizer and expenditure with additional secretary in the oil ministry as its member secretary, to make amends to a formula notified in January that doubled the gas price to $8.4 per million British thermal unit.

The official said the report will be reviewed in the Oil Ministry before a note is moved to the Cabinet.

Though contents of the report have been kept under wraps, the official indicated that the price increase may be around 50%. Most of the domestically produced gas is currently sold at a price of $4.2 per mmBtu.

The panel has tried to strike a balance between demands for a market linked rate by gas producers to make marginal and deepsea fields economically viable, and consumers in power and fertilizer sector, who have said they cannot afford any rate higher than $5.

Though the government had stated that a gas price will be announced by September end, there are indications that a decision may be put-off until completion of assembly polls in Maharasthra and Haryana in mid-October.

Any increase, even of $2 per mmBtu, will lead to a hike in CNG price for automobiles, something the ruling establishment does not want on the eve of state polls.

Industry sources said the previous UPA government had notified the Rangarajan formula in January but before a rate could be implemented from April 1, general elections were announced and Election Commission sought postponement of its implementation.

Since elections to Maharashtra and Haryana assembly have already been announced, a deferment can be sought on similar grounds.

An increase in gas price would have led to increase in cost of urea, power and CNG.

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% 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.

The increase in gas price would bring windfall for the government -- about $2.08 billion (Rs 12,900 crore) from additional profit petroleum, royalty and taxes accruing from doubling of gas rates, according to oil ministry estimates.