Cabinet set to hike gas price

The UPA government is likely to announce the first hike in gas prices in three years on Thursday. Besides being unpopular, the move would result in spiking electricity and fertiliser prices and would pile pressure of inflation on an already sluggish economy.

Subject to approval by the Cabinet Committee on Economic Affairs, the gas prices will increase from $4.2 per million British thermal unit to $6.7 mmbtu.

According to estimates, the hike in natural gas price by $1 would end up costing fertilizer plants Rs 3,155 crore per annum for producing 23 million tonnes of urea this year.

However, Petroleum Minister Veerappa Moily reckons that the price hike is needed to incentivise domestic gas exploration, which would increase home production and would eventually cut down imports. By 2014, gas prices could even go up to $8.55.  Analysts believe hiking prices to international levels would attract investments, increasing supplies in the world’s fourth largest consumer of energy, while also making import of liquefied natural gas from major producers like Qatar more attractive.

Finance minister P Chidambaram has listed gas pricing as one of the issues he expects to resolve before the end of June, after ratings agency Fitch urged the government to bring in reforms.

Moily had earlier said that the country needed to double the share of gas in its energy mix by 2020 from the current levels of 10 per cent by squeezing out expensive diesel and fuel oil.  India gets nearly 56 per cent of its energy needs now from coal industry and 26 per cent from oil.

The move, however, is facing strong opposition from the Left parties which are accusing the government of helping the Reliance Industries. The proposed hike of 50 per cent is also opposed by the fertiliser and power ministries respectively.