Gas pricing

Print edition : July 25, 2014
The new government decides on a policy of wait and watch on raising gas prices.

“Gas price politics” is one of the reasons cited for the defeat of the Congress-led United Progressive Alliance government in the recent general election, and the Bharatiya Janata Party-led national Democratic Alliance government is playing it safe. It has deferred by three months the decision to increase the price, which was to come into effect from July 1.

Today, everyone talks about “gas price”, comparing it with liquefied natural gas (LNG) or imported gas price and throwing up two-digit figures as the ideal price. “It is not fair to compare domestically produced gas price at well head with LNG rates,” said Narendra Taneja, national convener of the BJP’s energy cell.

(Well head price is the cost of natural gas at the mouth of the well. It excludes transport and delivery costs. For LNG, besides the well head price, liquefaction, transportation and re-gasification costs are taken into account to arrive at the price.)

Global prices

The current global average price at well head is around $4.7 a unit (gas is measured in million British thermal units). Taxes and levies amount to about $2/unit. The average LNG price is over $12/unit and the consumer gets it at around $14-15/unit.

Taneja said India was working on a price at the “well head” based on sound and transparent policy, which would be a win-win for all stakeholders, including companies. He said India should consider determining the price of domestically produced gas in rupee instead of dollar.

The hike impact

So why did the Narendra Modi government defer the decision on implementing the new price? A price hike will result in fertilizers, electricity, piped natural gas (domestic cooking) and compressed natural gas (transportation) becoming more expensive, which will directly impact its vote bank. But, if it chooses to insulate the public from an increase, there will be a substantial increase in the subsidy burden on these sectors.

Also, there is uncertainty over the two public interest litigation petitions against the price hike in the Supreme Court, and the unresolved arbitration issue with Reliance Industries-BP-Niko Resources.

Besides, there were differences of opinion over the formula suggested by the C. Rangarajan Committee, which formed the basis of Gas Pricing Guidelines, 2014. It was felt that the guidelines, which were to be notified initially from April 1, but were deferred owing to the Election Commission’s directive, did not comply with the requirement in the production-sharing contract that gas be valued on the basis of competitive arm’s length sales in the region.

Playing it safe, the Modi government deferred the decision, stating that having just assumed office, it will be most appropriate that the whole issue is re-examined comprehensively.

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