Panel to submit report on new gas pricing formula by Wednesday

A four-member panel of secretaries will submit its report on a new gas pricing mechanism by Wednesday, Oil Secretary Saurabh Chandra said today.
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 hold extensive consultations with stakeholders, primarily gas consumers and producers.
"We hope to get it (committee report) by the 10th (of September)," Chandra told reporters on sidelines of the PetroFed Awards function here.
The Cabinet Committee on Economic Affairs had on June 25 deferred by three months the implementation of a formula approved by the previous UPA government which would have doubled gas price to USD 8.4 per million British thermal unit.

The Rangarajan formula, approved by the UPA government, was to be implemented from April 1 but was deferred by three months as general elections were announced. The NDA government on June 25 postponed its implementation by a further three months pending a comprehensive review.
"The (Oil) Minister (Dharmendra Pradhan) has already made a statement on the floor of the Parliament that a new pricing formula will be announced by September 30 and we will stick to that," Chandra said.

Pradhan had told the Parliament last month that the NDA government decided to review the pricing formula keeping in mind public interest and recommendations of the Parliamentary Standing Committee.

Parliamentary Standing Committees on Finance as well as Petroleum had called for a review of the formula suggested by the Dr C Rangarajan headed panel, saying gas price should have some linkage with the cost of production.
According to the Oil Ministry, the cost of gas production varies between USD 1.86 per mmBtu to USD 4.31 per mmBtu but a cost-plus price would be perceived negatively by the market.
Doubling of gas rates 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 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.
The increase in gas price would bring windfall for the government -- about USD 2.08 billion (Rs 12,900 crore) from additional profit petroleum, royalty and taxes accruing from doubling of gas rates, the ministry estimates.
In their submission to the secretaries panel, energy producers have demanded a natural gas pricing policy that is "legitimate, relevant and credible" to maintain investor interest in Indian E&P sector.
State-owned ONGC in its submissions stated that it needs USD 6-7.15 to break-even on gas it plans to produce from its most prolific KG basin block and a price of between USD 5.25 to USD 17.80 per mmBtu to break-even on production planned from seven small and marginal fields in the western offshore.