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Ch. Prashanth Reddy

HYDERABAD, June 20

THE Chief Minister, Mr N. Chandrababu Naidu, has urged the Prime Minister, Mr A.B. Vajpayee, to put in place a market regulator to "consider the complex parameters for the pricing of natural gas, and to arrive at the optimal pricing based on actual cost plus reasonable profit in a transparent manner".

In a letter to the Prime Minister, the Chief Minister suggested that a specific provision should be made in the Act to empower the regulator to fix prices initially, and to mandate the regulator to "gradually introduce competition in the market, leading to eventual de-regulation".

Mr Naidu stated, "We are of the strong view that a consultative process with States must be initiated so that all factors are considered and subjected to public debate before determination of the pricing of natural gas."

In his letter dated June 18, Mr Naidu brought to the notice of the Prime Minister four issues regarding natural gas. The first issue pertained to the impact on the overall economy due to the proposed increase in the gas prices.

The second issue was the basis for proposing parity between the price of natural gas and the international price of a basket of fuel oils. The third one related to the economic pricing of natural gas and the fourth related to the market structure of natural gas.

The Chief Minister sought Mr Vajpayee's intervention to "ensure that the price of gas is not increased until the issues mentioned are considered".

Stating that Andhra Pradesh had planned gas-based generation capacity addition of 1450 MW in the next three years taking the total gas-based generation in the State to 2780 MW, Mr Naidu pointed out that if the price was increased to Rs 5,800 MCM (currently being charged for the Ravva Sattelite field), the cost of generation was expected to result in an additional burden of around Rs 1,564 crore per annum.

This additional burden has to be either borne by the Government as subsidy or to be passed on to the consumer as tariff increase. "This would adversely affect the entire reform process which has been the twin objective of reducing State subsidies as well as reducing tariffs." As gas exploration and production efforts were fully indigenous, the Chief Minister said that there was no justification to internationalise and denominate the price in dollars.

Similarly, he said that it was inappropriate if the price of natural gas produced within the country was being raised to "facilitate the entry of a much higher priced imported fuel like LNG".

Mr Naidu also pointed out that the present market structure of natural gas was monopolistic with mismatch between demand and supply.

"Under such monopolistic structure, any increase in gas prices would be advantageous to the producers of natural gas, and would not provide any added advantage to consumers," the letter said.

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