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The government is likely to take a final call on the gas price after the end of Parliament session. A decision on what should be the way of pricing natural gas would eventually rest with Finance Minister Arun Jaitley though officials in the government said the government was wary of the Supreme Court case on a public interest litigation filed by Gurudas Dasgupta and Prashant Bhusan.
The pricing regime which the National Democratic Alliance (NDA) government was likely to consider would be formula based, too, but might be linked to a cost benchmark making the applicability of a uniform price difficult, said a person close to decision making.
The government is currently involved in inter-ministerial discussions on the issue, after it decided to defer new pricing policy for all domestic natural gas for three months. The Cabinet on June 25 had put on hold the gas pricing guidelines of January 2014 that said a new pricing formula would be applicable from April 1, 2014. The formula was based on the Rangarajan committee report. The person, who did not want to be quoted, said the government was caught in a bind since investors were looking forward to a decisive word on the gas price but at the same time did not want to double the price, harming its prospects in the forthcoming Assembly elections. "A middle path needed to be evolved," he said.
Besides private player Reliance Industries Ltd (RIL), a new price would have benefited all domestic gas producers including government-controlled Oil and Natural Gas Corporation and Cairn India since the January notification formally adopted a uniform gas price policy, irrespective of the nature of field and the policy regime under which it was bid out.
The current gas price of $4.2 per million British thermal unit (mBtu) for RIL would have risen to $8.8 per mBtu based on the Rangarajan formula linking the local price to the cost of importing liquefied natural gas and rates in the US, the UK and Japan.
Critics of the formula within the government pointed to the skewed weightage of the Japanese price in the formula. Import-dependent Japan pays higher for natural gas but its price found representation twice - in liquefied natural gas imported into India as well as price at which it was imported into Japan - in the Rangarajan formula.
"The Cabinet Committee on Economic Affairs (CCEA) has decided the issue needs comprehensive discussions. All stakeholders will be consulted and the people's interest will be kept in mind," petroleum minister Dharmendra Pradhan had said after a meeting of the CCEA in June. The government, however, did not spell out the mechanism for such discussions.
The June decision came even after Prime Minister Narendra Modi held two rounds of discussions with the ministry of petroleum and natural gas.
RIL, along with its partner BP Plc and Niko, have sought arbitration with the government over the delay in implementing the new rate. The government has already ruled out retrospective implementation of the new price.
According to industry estimates, every $1 rise in the price of gas would add Rs 3,000 crore to the net profits of public sector undertakings and Rs 2,000 crore to those of RIL, Cairn and other private sector companies annually. It would, however, hit the power and fertliser sectors. For every $1 rise in the price of gas, the fertiliser subsidy is expected to rise by Rs 3,155 crore and the power sector's losses would soar by Rs 10,040 crore a year.
