‘Rangarajan gas price method requires House panel review’
25 Jun 2014 11:17 PM GMT
As the government appeared close to a decision on hiking natural gas prices, CPI(M) leader and MP Tapan Sen has written to Prime Minister Narendra Modi, seeking a review of the pricing formula, saying doubling of rates will lead to a phenomenal burden on the people.Sen, a known opponent of higher gas prices, said the Rangarajan formula, which is being made the basis for revising the rates, should be reviewed as recommended by a parliamentary standing committee. The new government is close to revising gas prices and the new rates may be announced as early as this week.
The panel, headed by Bharatiya Janata Party leader Yashwant Sinha, had recommended ‘factoring domestic cost of production of gas for arriving at the price,’ the Communist Party of India (Marxist) MP said, adding that it had also suggested fixing the gas price in rupees and not dollars, as is the current practice. The Rangarajan formula calls for pricing gas at the average cost of importing liquefied natural gas into India and the rates prevailing at international hubs in the US and UK, as well as the price of gas imported into Japan.
‘Natural gas is being produced domestically and must be priced based on cost plus reasonable returns on investment,’ he said.‘Any other methodology of pricing having no relevance with the cost of production in the name of market-determined or arm's-length basis, tailor-made to benefit the contractor, is bound to have perverse impact on the economy as well as people at large.’
The Rangarajan formula would double prices to $8.4 per million British thermal units and result in an additional fertiliser subsidy of Rs 14,500 crore per annum while putting a Rs 29,800 crore burden on the power sector, he said.
‘And while the burden on the government and therefore on the people will increase phenomenally owing to the proposed doubling of the natural gas price, the contractor's profit will also increase in a big way, thereby making the whole exercise for pricing a mechanism for transfer from public to private kitty,’ he said.
The panel, headed by Bharatiya Janata Party leader Yashwant Sinha, had recommended ‘factoring domestic cost of production of gas for arriving at the price,’ the Communist Party of India (Marxist) MP said, adding that it had also suggested fixing the gas price in rupees and not dollars, as is the current practice. The Rangarajan formula calls for pricing gas at the average cost of importing liquefied natural gas into India and the rates prevailing at international hubs in the US and UK, as well as the price of gas imported into Japan.
‘Natural gas is being produced domestically and must be priced based on cost plus reasonable returns on investment,’ he said.‘Any other methodology of pricing having no relevance with the cost of production in the name of market-determined or arm's-length basis, tailor-made to benefit the contractor, is bound to have perverse impact on the economy as well as people at large.’
The Rangarajan formula would double prices to $8.4 per million British thermal units and result in an additional fertiliser subsidy of Rs 14,500 crore per annum while putting a Rs 29,800 crore burden on the power sector, he said.
‘And while the burden on the government and therefore on the people will increase phenomenally owing to the proposed doubling of the natural gas price, the contractor's profit will also increase in a big way, thereby making the whole exercise for pricing a mechanism for transfer from public to private kitty,’ he said.
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