Talks continue on gas price in PMO

Replacing or removing some elements of the Rangarajan price formula to bring the revised rate to $7 per million British thermal units are among the options being explored

For a second day, top-level discussions continued on Monday to hammer out a more palatable increase in natural gas prices, that would boost production and not impose a heavy burden on consumers.

Finance Minister Arun Jaitley and Petroleum Minister Dharmendra Pradhan, who met Prime Minister Narendra Modi on Sunday, were in the Prime Minister’s Office again on Monday to discuss possible tweaks to the Rangarajan price formula, under which the price of gas would rise to $8.8 an mbtu from July from $4.2 currently.

Sources said the new government was looking at making some changes in the previous United Progressive Alliance-government approved Rangarajan price formula, which will result in a steep rise in the prices of electricity, urea, compressed natural gas and piped cooking gas.

While the new government is keen to take an early decision, it doesn't want to add to already high inflation, which may accelerate due to a below-normal monsoon and a spike in oil prices in the aftermath of the Iraq crisis.

Every dollar increase in gas price will lead to a Rs 1,370 per ton rise in urea production cost and a 45 paise per unit increase in electricity tariff. 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.

If the Rangarajan formula is implemented without changes, power tariff will rise by about Rs 2 per unit and CNG rates will jump by over Rs 12 per kg in Delhi.

Sources said replacing or removing some elements of the formula to bring the revised rate to $7 per million British thermal units, or at best $7.5, are among the options being explored.

Another possibility is to allow higher prices only on output that exceeds current production, or on production from fields discovered under the New Exploration Licensing Policy such as the Reliance Industries-operated KG-D6 fields. This would exclude state-owned firms including ONGC, which produce gas from pre-NELP blocks, from the revision.

Keeping state firms out of the price revision would mean there will be no hike in CNG and piped cooking gas price because their input comes from ONGC fields.

An increase in the rate for RIL, which along with partner BP plc had slapped an arbitration notice against the delay in implementation of the new rate from April 1, when the old rate expired, would make only fertiliser costlier, which the government can subsidise.