New price likely to be around $6 a unit

“Wait for 24 to 48 hrs and clarity should emerge on gas prices,” a senior official in the Petroleum & Natural Gas Ministry says.

While no one is sure about when the Government will announce a new price for domestically produced gas, one thing is certain — the price will be higher than the current $4.2 a unit (gas is measured in million British thermal units) excluding local taxes, transportation charges, and marketing margins.

The buzz is that the new price could hover around $6 a unit, a climb-down from the earlier talked about rates of around $8 a unit, based on the Rangarajan panel formula. Every dollar increase in gas price results in power costs going up by about 45 paise a unit, CNG (compressed natural gas) costs in Delhi by ₹2.81 a kg, and PNG (piped cooking gas) will be up ₹1.89 for every standard cubic metre.

A consensus has emerged within the Government that the pricing formula suggested by the Rangarajan panel needs to be reviewed.

Indications are that the increase could be uniform, which would please all the producers and if markets are anything to go by, $6 a unit is an acceptable price for consumers as well. Besides, the method of price calculation — whether the price will be calculated on the basis of gross calorific value (GCV) or net calorific value (NCV) — will also undergo a change.

The heat produced from natural gas is measured in calorific value. If it is based on GCV, it would mean prices will automatically go up by a dollar extra, which is not acceptable to the buyers.

“A series of debates and deliberates have already taken place on the issue…a final call has to be taken by the Cabinet Committee on Economic Affairs. The question is when? Will it be tonight or tomorrow?” said another official.

RIL case against Govt

In parallel, the Ministry is said to have sought the Law Ministry’s views on how to deal with the arbitration case filed by Reliance Industries Ltd against the Government disputing the decision to postpone implementation of revised domestic gas price guidelines. The new price was to come into effect from April 1, 2014, but was deferred following the Election Commission’s decision.

In fact, the Ministry has ‘informally’ asked RIL to withdraw the arbitration case. The Ministry has said that at this stage there is no dispute and, therefore, the notice is not tenable and the contractor should withdraw it. The Ministry has based its argument on the grounds that Supreme Court has said the Government has the right to decide the gas price and that natural resources belong to the Government.

The contractors had filed an arbitration notice as their future investment plans are dependent on the gas price.

(This article was published on June 24, 2014)
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