Govt postpones decision on revision of natural gas prices

Days ahead of its own deadline for the revision of natural gas prices, government today postponed a decision on it by another 45 days to November 15.

The NDA government, after coming to power, had put off implementation of the previous UPA-regime approved Rangarajan formula, which would have at least doubled rates to USD 8.4 per million British thermal unit, till September 30 for holding wider consultations.

The Cabinet headed by Prime Minister Narendra Modi deferred a decision on the issue till November 15, Law and Telecom Minister Ravi Shankar Prasad told reporters here.
Incidentally, Finance Minister Arun Jaitley did not attend today's Cabinet meeting as he is yet to be discharged from the hospital where he was admitted on Sunday evening for a post-surgery check-ups.

The UPA government had in June last year approved a price formula suggested by a panel headed by C Rangarajan and re-confirmed it in December 2013 with certain conditions for Reliance Industries' eastern offshore KG-D6 block.

The formula was to be implemented from April 1, 2014 but before a rate could be notified, general elections were announced and Election Commission asked the then government to defer it till completion of polls.

On June 25, the new BJP-led government deferred it for a further three months as it found doubling of rates as per the approved formula unpalatable.

Oil Minister Dharmendra Pradhan had recently told Parliament that a new gas price will be announced by September end.

In August-end, the government constituted a four-member panel of secretaries to review the formula. The committee comprising of secretaries of power, fertiliser and expenditure with additional secretary in the Oil Ministry as its member secretary, last week submitted its recommendation on a new pricing mechanism. The deferment will also provide political relief to the NDA government which faces crucial electoral test in assembly elections in Maharasthra and Haryana.

Any increase in gas price would have translated into higher power tariff and CNG and piped cooking gas rates.

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, according to Oil Ministry estimates.

Sources said there were also sharp difference between Oil Ministry and Power Ministry over the quantum of increase.

While the Oil Ministry is in favour of remunerative gas price that will encourage investments in exploration and production, the Power Ministry does not want rates to be hiked by more than 25 per cent over the current price of USD 4.2 per mmBtu as a higher fuel cost will push up electricity tariff.