Separate pricing formula may insulate power, fertiliser firms

CCEAs had decided to increase prices of domestic natural gas uniformly from April next year based on PMEAC chairman C Rangarajan committee report

In a move to insulate the power and fertiliser sector from a steep natural gas price hike from April next year, the government might come up with a separate input pricing mechanism for the sectors.

The Cabinet Committee on Economic affairs had decided to increase the prices of domestic natural gas uniformly from April next year, based on the report by the C Rangarajan Committee. The decision would double the prices from the current $ 4.2 per million metric British thermal unit (mmBtu) to $ 8.4 per mmBtu, which would be revised on a quarterly basis.

“This is just the output price of gas. In course of time, the concerns of power and fertiliser sectors would be addressed and there would be a separate input price of gas for these sectors,” Finance Minister P Chidambaram said on Friday.

According to sources, the government is planning to subsidise both power and fertiliser customers at the input price level. The quantum of insulation would be decided based on proposals by the concerned ministries. For every $1 increase in prices, the power sector is expected to lose Rs 10,040 crore, while fertiliser subsidy is likely to rise by Rs 3,155 crore according to government estimates. (User industries, consumers to be hit)

On the other hand, the government is showing economic reasons for its decision. “Domestic investments have come down to $ 1.8 billion in 2011-12, from $ 6.3 billion in 2008-09. Compared to this, in the last 10 years, Indian companies have invested $ 27 billion in the oil and gas sector abroad and another $ 10 billion is in the pipeline. To stop this trend, we have to increase exploration in the country. No global company would invest without a fair price,” Chidambaram added.

According to the finance ministry, the share of imports in the country’s overall consumption would go up from 50 million metric standard cubic metre per day (mmscmd) to 234 mmscmd by 2016-17, unless the prices are increased to invite more investments.  The domestic gas production too has gone down from 143.1 mmscmd in 2010-11 to 111.4 mmscmd during the last financial year. The new pricing would be applicable for both, public and private sector companies, conventional natural gas, coal-bed methane and shale gas too.

“For every $ 1 increase, our outgo would be $ 1 billion and the in-go would be $ 500 million in the form of royalty and other taxes. While the Rangarajan Committee came up with its formulae taking average of long-term and spot Liquified Natural Gas and global prices. Now, we have cleared it, omitting the spot prices,” said petroleum minister M Veerappa Moily.

According to the ministry, the Rangarajan formulae excluding spot prices would come down to $ 6.3 now and is expected to go up to $ 8.4 by April next year. Moily added the pricing was for a period of five years till 2018-19, as the government wanted to give more time to investors. “A committee led by Vijay Kelkar would look into the pricing system after that,” he said.