Secretaries panel to review gas price formula

Nearly two months after it put off a steep gas price revision, the government has constituted a four-member committee of secretaries to hold consultations with stakeholders before deciding on the quantum of hike.

"The committee will comprise secretaries of power, fertilizer and expenditure while additional secretary in the oil ministry will be member secretary to the committee," said Rajive Kumar, Additional Secretary in the Oil Ministry here.

The panel will hold extensive consultations with stakeholders, primarily gas consumers and producers and submit a report within 2-3 weeks, he said. "The first meeting is scheduled for Monday."

The Cabinet Committee on Economic Affairs had on June 25 deferred by three months the implementation of the Rangarajan formula that would have doubled gas price to USD 8.4 per million British thermal unit.

The Rangarajan formula, approved by the previous 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 timelines have already been drawn (by the Cabinet) and so the report will be submitted within a few weeks," he said adding the mandate of the committee is to "review" the pricing mechanism.

Earlier this month, Oil Minister Dharmendra Pradhan had told the Parliament that the NDA government decided to review the pricing formula keeping in mind public interest and recommendations of the Parliamentary Standing Committee.

He had said a decision will be taken keeping in mind the interest of investors and public and a new formula will be announced by September 30. Till then, the USD 4.2 per mmBtu price will continue.

Parliamentary Standing Committees on Finance as well as Petroleum had called for a review of the formula suggested by the panel headed by Dr C Rangarajan, 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.

The gas price hike was deferred as the doubling of 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.