Millennium Post

New gas price formula by September-end: Pradhan

Oil Minister of India Dharmendra Pradhan, however, said no committee has been constituted to suggest an alternative to the Rangarajan formula approved by the previous UPA government that would have doubled the price of gas to $8.4 per million British thermal unit.

The Rangarajan formula was to be implemented from 1 April but was deferred by three months as general elections were announced. The NDA government on 25 June postponed its implementation by a further three months pending a comprehensive review.

Replying to questions in Rajya Sabha, Pradhan said the NDA government decided to review the
pricing formula keeping in mind public interest and recommendations of the Parliamentary Standing Committee.

Till the new prices are announced, $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 $1.86 per mmBtu to $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. But the increase in gas price would bring windfall for the government — about $2.08 billion (Rs 12,900 crore) from additional profit petroleum, royalty and taxes accruing from doubling of gas rates, the ministry estimates.

Pradhan said the new government considered gas price issue and noted that the pricing of natural gas under the 'Domestic Natural Gas Pricing Guidelines, 2014' has been a ‘contentious issue’.

Two Public Interest Litigations (PILs) in Supreme Court have been filed and an FIR is pending in the Anti-Corruption Bureau, Delhi. Moreover, the Parliamentary Standing Committee on Finance and Standing Committee on Petroleum have made adverse comments related to the government decision on gas pricing, he said.

‘Considering these and other factors the government decided in the CCEA meeting held on 25 June, 2014 that the whole issue of gas pricing needs comprehensive re-examination....
‘...and directed that the Domestic Natural Gas Pricing Guidelines, 2014 will be kept in abeyance up to 30 September, 2014 and till that time, the domestically produced gas continue to be priced at the rate prevailing on 31 March, 2014,’ Pradhan said.

The minister, however replied in negative to a query if a committee has been constituted for determining the alternative formula.
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