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Facing all-round criticism on the formula and the blanket permission given for increasing gas prices, the finance ministry has tried to cool the anger by writing a letter to the petroleum ministry. Finance ministry has sought a cap on the increase in domestic gas price when it is implemented from April 2014.
Apart from introducing a cap, the ministry has also asked the petroleum ministry to examine whether it is possible to ensure that Reliance Industries delivers its current undelivered supply at the old price of $4.2 mmBtu.
Coming nearly two weeks after the announcement of raising gas prices, is the latest move by the finance ministry a face saving exercise that the market has seen through. Stock price of Reliance which fell after the news hit the market on Wednesday has recovered its losses, signalling that it is unlikely that the petroleum ministry will care to listen to the finance ministry.
In fact, our own report quotes a senior petroleum ministry official who insists that there is no question of rethink on the gas price hike. Will this reopen the rivalry between the two ministries needs to be seen.
However, the points raised by the finance ministry raises two important points. One, it questions the Rangarajan formula for gas prices which has given a potential to the producer to earn unlimited profits on an asset which belongs to the people of the country. Secondly, it raises the question of allowing new prices to old ‘discoveries’.
While the ministry has raised the issue of Reliance, the same is also applicable to all other producers. Further it defies logic on why a timeline needs to be in place. Why should old prices be charged to Reliance only till it meets its production quota of April 2014 and why not to the entire find. Out of the reserve of around 11 trillion cubic feet (tcf), the company has till the end of March 2013 produced only 2 tcf.
There is some logic in giving new prices to new wells though the price of $8.4/mmBtu is difficult to digest, However, giving the producers benefit of higher prices on their older producing wells is a very costly mistake.
The way Petroleum Ministry has reacted to Finance Ministry ‘soft’ note, it is clear that the entire exercise is an eye-wash. The government’s public relation department is trying to confuse and ultimately bury the entire gas price hike controversy.
