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The Finance Minister, speaking at a press conference post the gas price hike, said that while output prices for gas have been raised, the decision on prices at which gas will be supplied to power and fertiliser sector will be taken later.
There has been stiff opposition from the power sector and fertiliser sector as it will substantially increase the input costs for gas based power and fertilizer producers. There are concerns about the impact of gas price hike for the common man too as analysts expect hiked gas prices passed on by power producers will result in per unit cost to the consumer increasing substantially by about Rs 4.7 per unit.
For the fertiliser sector, the impact is likely to be larger than power since gas based proportion of gas based power producers is much less, as there are considerable amount of Thermal and Hydro power production capacities. Also looking at the political implications the government may not allow costs being passed on to the farmers and hence lead to an increase in the subsidy bill. The outgo for the fertilizer sector due to every $1 hike in gas price is expected to be at $406 million (Rs. 2,233 crore).
The finance minister said that the hike in gas prices had been necessary looking at the declining gas production and therefore increasing imports. While the gas production by PSU companies such as ONGC and Oil India has stagnated at 70 mmscmd (million metric standard cubic metres per day), the output private sector production has decreased from 73 mmscmd in FY11 to 40 mmscmd in FY13.
The imports have been increasing on the other hand to fulfill the demand. The LNG imports have risen from 38 mmscmd in FY11 to 50 mmscmd in Fy13 and at this rate in a few years the imports will rise to 234 mmscmd. Such huge imports are not affordable. The contract prices for Gas imported by Gas authority of India stands between $11-13.6 per mmscmd. Thus international prices are much more the prices of $4.2 per mmscmd that government paid and hence the investment in the sector was not improving.
