The BJP Government will take more time to decide on the pricing of domestically produced gas, a politically sensitive issue. On Wednesday, the Cabinet Committee on Economic Affairs (CCEA) decided to defer the issue by three months.

Through the day, the market was abuzz with speculation on what the price would be.

Briefing newspersons, Petroleum and Natural Gas Minister Dharmendra Pradhan said it was felt that the issue required more discussion and that consultations would be held with stakeholders, keeping the public interest in mind.

While the official position was that the new Government must be given time to review the matter, it is not clear on what issues fresh consultations will take place. The new price of gas was proposed to be around $6 a unit (gas is measured in million British thermal units), a climbdown from the earlier recommended $8 a unit, which was based on the formula derived by the Rangarajan panel. The formula itself was not acceptable to many within the Government as well as stakeholders.

The method that will be used to calculate the price — on the basis of gross calorific value (GCV) or net calorific value (NCV) — is also a point of contention. The heat produced from natural gas is measured in calorific value. If it is based on GCV it will mean prices automatically going up by a dollar, which was not acceptable to buyers.

Law Minister Ravi Shankar Prasad said that “the structure and mechanism of the price will need to be reviewed.”

RIL notice

The price of gas is a contentious issue, and it has been compounded by a dispute between the government (it began during the UPA regime) and Reliance Industries and its partners, which have operations in the country’s largest gas fields, in the Krishna-Godavari basin.

RIL had issued an arbitration notice to the government, disputing the deferment of the new price, which was to come into effect from April 1. Officials in the Ministry said that a response to the notice would be sent shortly. They, however, did not elaborate on what the ministry’s stance would be.

(This article was published on June 25, 2014)
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