Says the increase will lead to higher fertiliser subsidy
The Department of Fertilisers has opposed the proposal to increase the prices of gas sold under the administered price mechanism (APM), saying the hike will lead to a higher fertiliser subsidy. The fertiliser sector consumes about 30 per cent of APM gas.
The petroleum ministry has proposed a 44 per cent increase in the prices of natural gas sold under APM by state-owned Oil and Natural Gas Corporation (ONGC) and Oil India Ltd. This would take the price to $2.6 (about Rs 117) per million British thermal unit (mBtu).
A draft note on gas price revision has been circulated among various departments and ministries to seek their views. “The fertiliser ministry has opposed any hike in APM gas prices. However, the Cabinet note, along with the comments of various departments, will be put up before the Cabinet to take a decision,” said a petroleum ministry official.
According to the draft note, the petroleum ministry is proposing a price of $2.6 per mBtu as against a current price of $1.8 per (about Rs 81) mBtu.
In case of fertiliser, the retail prices are capped by government and any increase in input cost is offset as subsidy. The difference between cost and the maximum retail price (MRP) is released as fertiliser subsidy to manufacturers and importers of these subsidised fertilisers. “The subsidy burden will move up, since the MRP is fixed. Any increase in input means an increase in subsidy,” said Satish Chander, director general, Fertiliser Association of India. The fertiliser subsidy from April till mid-November of 2009 was Rs 38,760 crore.
The power sector, which consumes another 40-45 per cent, has not yet responded to the ministry’s note. However, in case of power, any increase in input can be passed on to the consumers.
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The price of APM gas, which is produced from the nominated fields, was last revised in 2006 by about 20 per cent. According to the proposal, the new price will come into effect retrospectively from April 1, 2009. The government regulates the price of natural gas produced from fields awarded before the introduction of the New Exploration Licensing Policy in 1999.
At 45 million standard cubic metres a day (mscmd), APM gas currently accounts for over 34 per cent of the country’s 130 mscmd gas availability (which includes the latest production from Reliance Industries’ Krishna-Godavari basin).
However, the share of APM gas in total availability has been falling gradually.