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The ministry of petroleum and natural gas has mooted $6.7 a million British thermal unit (mBtu) price for domestic natural gas being produced by Reliance Industries Ltd (RIL) from its KG-D6 block from April 2014 and for a host of other fields immediately.
The ministry, in a Cabinet note looking into the suggestions of the C Rangarajan committee on gas pricing, has suggested formation of a gas pricing committee to look into prices on a quarterly basis for fields operated under the New Exploration and Licensing Policy. The Rangarajan committee had mooted notification of gas prices on a monthly basis.
The pricing committee would be headed by the Petroleum Planning and Analysis Cell (PPAC), with representatives from the petroleum and finance ministries, GAIL India and Petronet LNG.
The note for the Cabinet Committee on Economic Affairs (CCEA), which expected to meet on May 28, batted for implementation of a new pricing mechanism for state-run companies now and for companies such as RIL by next April.
According to the Rangarajan formula, the base price of domestic natural gas was expected to go up to $8.8 a mmBtu from $4.2 currently. The note added these policies should be applicable for the 12th five-year Plan period as a road map for gas pricing after 2016-17 is being worked out separately by the Kelkar committee.
According to the note, the impact of $1 hike in natural gas price would affect the fertiliser industry by Rs 3,155 crore per annum for producing 23 million tonnes (mt) of urea in 2013-14, while it is expected to increase to Rs 4,144 crore in 2017-18. On the other hand, the impact of every dollar increase on the power sector, at 70 per cent plant load factor for 28,000 Megawatt of generation capacity, is expected to be around Rs 10,040 crore.
The finance, power and fertiliser ministries had raised concerns and had come out with suggestions regarding the Rangarajan Committee recommendations, along with the Planning Commission. The finance ministry has rejected the formula and, instead, suggested an alternative that takes into account well-head prices of suppliers in Qatar, Oman, Abu Dhabi and Malaysia.
While opposing the Rangarajan formula, which uses the trailing 12-month average of the producer price of liquefied natural gas (LNG) imports to India and the price prevalent in the US, Europe and Japan, the finance ministry said there was no logic in linking domestic price with spot LNG contracts.
Gas prices of Oil and Natural Gas Corp (ONGC) and Oil India Ltd fields, under administered pricing mechanism allotted on nomination basis, may be revised this financial year only. Moreover, the pricing would be uniform for all consumers, which contests with power ministry suggestions.
