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With PM set to leave for USA, meeting new gas price deadline near impossible

The Government had promised to come up with a new gas price by September-end but it only has Wednesday to get it approved as Prime Minister Narendra Modi will leave for the USA on Thursday afternoon. Wednesday is the scheduled day for holding meetings of the Cabinet and its committees where the oil ministry can bring up a proposal for a new gas price, officials said.

However, Finance Minister Arun Jaitley, who was on Sunday evening admitted to hospital for a check-up after an operation to treat his diabetes, is yet to be discharged. He may be discharged on Wednesday morning, said Jaitley's aides. A meeting of the Cabinet Committee on Economic Affairs
(CCEA) can be scheduled after his availability is confirmed, officials said.

Oil Minister Dharmendra Pradhan, who has been consulting Jaitely on the issue, last met the Finance Minister late on Friday evening. Modi, who will launch the ‘Make in India’ campaign on Thursday morning to promote manufacturing in the country, is scheduled to leave for the USA late in the afternoon that day. He will return in the evening of October 1.

So if the CCEA does not approve a new price on Wednesday, it is likely that the Government will miss the September 30 deadline. Officials said that the entire issue is being treated with utmost secrecy and limited copies of the report of a four- member committee of secretaries that looked at the new pricing mechanism, have been made.

The Oil Ministry, they said, may even take comments on the note it has prepared for the Cabinet, based on the committee recommendation, through email to the concerned ministers, to prevent it from getting leaked. The Government had last month constituted a committee comprising of secretaries of power, fertiliser and expenditure with additional secretary in the oil ministry as its member secretary, to make amends to a formula notified in January that doubled the gas price to $8.4 per million British thermal unit.

Although the contents of the report have been kept under wraps, officials indicated that the price increase may be around 50 per cent. Most of the domestically produced gas is currently sold at a price of $4.2 per mmBtu.

The panel has tried to strike a balance between demands for a market linked rate by gas producers to make marginal and deepsea fields economically viable, and consumers in power and fertiliser sector, who have said they cannot afford any rate higher than $5. The previous UPA government had notified the Rangarajan formula in January but before a rate could be implemented from April 1, general elections were announced and Election Commission sought postponement of its implementation.

An increase in gas price 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 $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.

The Cabinet Committee on Economic Affairs had on June 25 deferred by three months the implementation of a formula approved by the previous UPA government which would have doubled gas price to $8.4 per million British thermal unit. The Rangarajan formula, approved by the 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. Oil Minister Dharmendra Pradhan had last month 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.

Parliamentary Standing Committees on Finance as well as Petroleum had called for a review of the formula suggested by the Dr C Rangarajan headed panel, 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 and $4.31 per mmBtu but a cost-plus price would be perceived negatively by the market.

In their submission to the secretaries panel, energy producers have demanded a natural gas pricing policy that is ‘legitimate, relevant and credible’ to maintain investor interest in Indian E&P sector.
State-owned ONGC in its submissions stated that it needs USD 6-7.15 to break-even on gas it plans to produce from its most prolific KG basin block and a price of between $5.25 and $17.80 per mmBtu to break-even on production planned from seven small and marginal fields in the western offshore.

BP, which partners Reliance Industries in KG-D6 and other blocks, stated that deeper gas fields are not viable at a price of anything less than $10.
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