Two controversial decisions – natural gas pricing and coal price pooling – could be taken up by the Cabinet Committee on Economic Affairs (CCEA) Friday. Both, if considered will result in higher electricity bills and impact Government subsidy.

But, whether CCEA will take decision on gas price remains to be seen, as the Minister for Petroleum & Natural Gas M. Veerappa Moily was not in the city, and the Power Ministry continues to oppose the proposed domestically produced gas price of $6.77/mmBtu by the Petroleum Ministry.

The Power Ministry has said that any price beyond $5/mmBtu was unviable for the sector. The Fertiliser Ministry had also expressed its reservations.

There is also talk of CCEA referring the matter back to an empowered group of ministers given its politically sensitive nature.

Finance Minister P. Chidambaram has listed gas pricing as one of the issues he expects to resolve before June end.The Petroleum Ministry has suggested that gas prices should be notified in advance on a quarterly basis using the data for four quarters, with a lag of one quarter.

Though the Petroleum Ministry has based its proposal on gas pricing as recommended by the Rangarajan Committee, it has deviated on this point, a senior Petroleum Ministry official had told Business Line.

The Rangarajan panel, looking into the production sharing contracts in the petroleum industry including gas pricing, had suggested that the price should be notified on a monthly basis.

Further, the proposed ‘Natural Gas Pricing Guidelines’ will be applicable to all natural gas domestically produced irrespective of the source, whether conventional, shale, CBM.

Currently, domestically produced gas is sold in the range of $4.2-$5.75/mmBtu, spot (imported gas) at $13-$14/mmBtu and long-term contract at $11.5/mmBtu. These prices are excluding local taxes and add on’s like marketing margins, transportation tariff.

Coal price pass through

The CCEA is also expected to deliberate on a mechanism that would allow power producers to pass though the cost of expensive imported coal used by them.

This mechanism would be applicable for nearly 78,000 MW of thermal electricity generating stations commissioned after 2009. The Power and Coal Ministries are understood to have worked out three models for the mechanism to work.

According to industry watchers, if a pass-through mechanism is implemented it would help power companies such as Adani Power, CESC, GMR, Lanco, Reliance Power and JSPL. However, there would be no impact on country’s largest power producer NTPC because it is already operating on the cost-plus model.

The latest fuel supply agreement (FSA) put forward by Coal India has promised fuel supplies of 80 per cent. Of this, 65 per cent would be met from domestic mines, while 15 per cent would be imported.

(This article was published on June 20, 2013)
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