Cap in gas pricing formula in the works to combat global volatility
The govt is examining a proposal to tweak the newly approved gas price formula to bring in a cap with the aim of protecting consumers from volatility in the international market.
According a recent Cabinet decision, the Directorate General of Hydrocarbons (DGH) will examine the concept of a cap in the recently approved price formula under which domestic gas price was set at $5.61 per unit. The gas pricing mechanism approved by the cabinet in October was based on the recommendations of a committee of secretaries (CoS), which had also proposed a cap on the price, government sources said.
“The suggestion to impose a cap on the gas price has to pass the tests of legal tenability, economic determinability and reasonability. Hence, it is proposed that in the first instance, DGH may examine this suggestion. Thereafter, based on DGH’s report a decision may be taken with the approval of the minister in-charge of the ministry of petroleum and natural gas and the finance minister,” one source, aware of the Cabinet’s decision, said. The oil ministry did not respond to ET’s email queries.
Oil and gas industry officials criticised the idea, calling it a regressive step. “The economic viability of several discoveries are already doubtful with recently approved gas price of$5.61 per unit, which is about one-third of the price of imported gas,” CEO of an energy firm said requesting anonymity.
Officials with knowledge of the matter said CoS had asked the Cabinet to consider a cap, as gas consumers had sought introduction of a ceiling. Officials from the oil and gas disputed this logic. “When there is no floor price, demand for a cap is unreasonable. Will the government protect gas producers if international prices crash? If India wants to invite investments and technology in the oil and gas sector, it should allow market price of gas,” an exploration expert said.
Several members of Association of Oil & Gas Operators (AOGO) said India’s pricing policy discourages natural gas production. “This is not good for a country which is heavily dependent on energy imports,” said an AOGO member, who did not wish to be named.