Government may not implement gas price hike retrospectively

The government may not implement the delayed increase in price of natural gas with retrospective effect as it would be difficult to back charge higher bills from power and CNG consumers, an official said.

A new price for all domestically produced gas, based on a formula suggested by a panel headed by C Rangarajan, was to have come into effect from April 1 but was delayed due to the general elections. The revised rate is yet to be announced as the new government applies its mind to the issue.

"Natural gas is mainly used for manufacturing fertiliser, generating electricity and producing CNG. Since the new price announcement was deferred, gas was sold at the old rate of USD 4.2 per million British thermal units.

"This price was used to calculate the rate at which urea was sold to farmers, power to households and CNG to automobiles. Now if the gas price is to be revised with retrospective effect, from April 1, then how will you back charge the users who have already consumed electricity or CNG," a top government official said.

Retrospective implementation of the new gas price may not pose a problem for the fertiliser sector if the government agrees to proportionately increase the subsidy payout for the period beginning April 1.

Applying the same principle to power producers and CNG retailers would be difficult because the central government does not provide any direct subsidy to them.

At the assumed new rate of USD 8.4, the cost of power will jump to Rs 6.40 per unit from Rs 2.93 a unit currently. It would translate into an increase of at least Rs 8 per kg in retail CNG rates.

The official said the BJP-led government is studying the Rangarajan panel formulation of pricing gas at an average of international hub prices and the rate at which India imports LNG.

A decision on implementing the formula, which was approved by the Cabinet under then Prime Minister Manmohan Singh in December, will be taken in consultation with the ministries of finance and law, he said.

"The retrospective application of the new price will have financial implications for both fertiliser subsidies and also for the cost of production of power in gas-based plants. The recovery of differential price because of retrospective notification will also be an issue," he said.

Reliance Industries and its partners BP plc of UK and Canada's Niko Resources, which produce about 15 per cent of the nation's domestic gas, have sought implementation of the new rate from April 1 and have initiated an arbitration over the delay.

They say the old rate of USD 4.2 for their eastern offshore KG-D6 field expired on March 31 and so they are entitled to the new price from the next day.