The government today hinted that companies retailing CNG and piped natural gas in metros may not pass on the entire impact of the over two-fold hike in natural gas prices to consumers.
Rates of compressed natural gas (CNG) sold to automobiles in Delhi and Mumbai will have to be raised by about Rs 6 per kg, while piped gas for households would have to be hiked by about Rs 4 per cubic metre because of the government's decision to raise input gas prices to Rs 7.5 per cubic metre.
"We sincerely hope that passing on the entire burden (of increased input cost) may not be necessary for companies retailing CNG and PNG to automobiles and households in Delhi and Mumbai," Oil Secretary S Sundareshan told reporter.
Indraprastha Gas Ltd. (IGL) in Delhi and Mahanagar Gas Ltd. (MGL) in Mumbai are the only city gas companies in the country that buy government-controlled gas, called APM gas, the price of which was raised yesterday.
"These companies are majority owned by oil PSUs and the government is the largest shareholder in these oil PSUs. So we hope the companies will take a considered view," he said.
Both IGL and MGL have so far remained tight-lipped about passing on the rise in natural gas prices to consumers.
The Cabinet, yesterday, hiked the price of gas sold to power, fertilizer and city gas projects from Rs 3,200 per thousand cubic metres ($1.79 per million British thermal unit) to Rs 6,818 per thousand cubic metres ($3.818 per mmBtu). After adding royalty, the price for user industries would be Rs 7,500 per thousand cubic metres (Rs 7.5 per cubic metre) or $4.2 per mmBtu, at par with the rate at which Reliance Industries sells gas from its KG basin fields.
He said the decision would come into effect once it is notified in the next few days. It would also lead to a rise in fertilizer production costs and power generation tariffs.
Fertilizer prices will not be increased, as the government subsidises the sector. But the decision would result in the fertiliser subsidy rising by Rs 3,500 crore. "The government stands to gain (in royalty and taxes) an amount larger than this subsidy payout," the Secretary said.
Sundareshan said the increase in power tariffs would be marginal, as only 11 per cent of the total electricity generated in the country was from gas-based power projects and of these, only one-third use APM gas. CNG in Delhi currently costs Rs 21.90 per kg. State-owned ONGC and OIL, which produce APM gas, would gain about Rs 5,000 crore and Rs 700 crore in revenues because of the gas price increase.
State gas utility GAIL India, which has been allowed to charge Rs 200 per thousand cubic metres or 11.2 cents per mmBtu as marketing margin, would gain Rs 200 crore in revenues annually, he said.
State-run ONGC and OIL produce 54.32 million cubic metres of gas per day, or about 40 per cent of the total gas produced in the country, from fields given to them on a nomination basis. This gas is sold at government controlled rates, with about 50 mmscmd allocated to power and fertilizer units and city gas projects at $1.79 per mmBtu and the remainder to other industries at $4.75 per mmBtu.
"ONGC and OIL have been making substantial losses in their gas business. The (current) low prices of gas have discouraged national oil companies from making investment (in raising dwindling output). Therefore, it became essential to increase the price of gas," Sundareshan said.
On top of the $4.2 per mmBtu APM gas price tag, state gas transportation and marketing firm GAIL India would be allowed to charge Rs 200 per thousand cubic metres, or 11.2 cents per mmBtu, as a marketing margin. There would also be taxes, pipeline transportation charges and other levies.
The new price will be for the period up to March 31, 2014, the time till when Reliance Industries has been allowed to charge $4.2 per mmBtu for gas from its KG-D6 fields.
The government controls rates of gas produced by ONGC and OIL from fields given to them on a nomination basis (called APM gas). The APM gas price were last revised in 2005 to Rs 3,200 per thousand cubic metres ($1.79 per mmBtu).
ONGC, in 2008-09, lost Rs 4,745 crore in revenues on selling 17.71 billion cubic metres of gas at the government fixed rate.
The Petroleum Ministry had previously wanted to raise the gas price in stages to $4.2 per mmBtu. It wanted rates paid to ONGC and OIL to be immediately hiked to Rs 4,142 per thousand cubic metres ($2.32 per mmBtu). The consumer price at this rate would have been 10 per cent higher at $2.55 per mmBtu. Thereafter, the rates were to be hiked to $4.2 per mmBtu in three more installments.
However, on the insistence of the Finance Ministry, the oil ministry withdrew the proposal and moved a fresh one seeking to raise the price of the gas under APM to Rs 7,500 per thousand cubic metres, or $4.2 per mmBtu, sources said.
The Finance Ministry wanted the hike to happen in one stage and not in stages, sources said.
About 39 per cent of the nation's 140 million standard cubic metres a day of gas output is sold at administered rates. A hike in these rates is an attempt to reduce distortions in a market with more than a dozen prices.
The government has set $4.2 per mmBtu as the sale price of gas from Reliance Industries' eastern offshore KG-D6 fields, while the gas from BG Group-operated Panna/Mukta Tapti fields is sold at $5.73 per mmBtu.
Sources said 54.32 mmscmd gas produced by ONGC and OIL is sold at APM rates.