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Panel may submit report on gas prices next week

A government source said secretaries in the power and oil ministries were preoccupied with restoration of fuel and power infrastructure in Kashmir.

, ET Bureau|
Sep 11, 2014, 06.17 AM IST
NEW DELHI: The committee of secretaries on gas prices will take another week to submit its recommendation because of sharp differences between producers and consumers, and preoccupation of top officials in restoring fuel and electricity supply to flood-ravaged Kashmir.

Some members of the committee want to link the price of gas with the cost of production while others don’t want to raise prices for gas produced from old fields that have already recovered their costs, government and industry sources said.

"The committee is likely to submit its report next week," a source close to the panel said. The oil secretary on Monday told reporters that the ministry was expecting the report by Wednesday.

A government source said secretaries in the power and oil ministries were preoccupied with restoration of fuel and power infrastructure in Kashmir. "It is the government’s first priority," the source said.

The government last month constituted the panel to review the gas price formula proposed by the Rangarajan committee, which was approved by the UPA government. The previous government, which had also notified the new pricing mechanism in January this year, could not announce the rate after the Election Commission vetoed its move.

The formula proposed to double gas price from $4.20 per unit to about $8.4 per unit from April 2014. The Cabinet of the new government, which considered the pricing matter on June 25, decided to review the formula in public interest, and deferred the matter until Sept 30.

Panel may submit report on gas prices next week Most members in the panel of secretaries do not want to give producers a free hand in fixing gas price because demand outstrips supply, sources said. The committee comprises expenditure, fertiliser and power secretaries. The oil ministry is represented by its additional secretary, Rajive Kumar, who is also the member secretary for the panel.

"The stand of power, fertilizer and expenditure ministries are well known. All of them wants a price below Rangarajan formula because steep hike in gas price would mean higher power and fertilizer rates and consequently higher subsidy outgo, which expenditure secretary would not prefer.

The oil ministry is the only supporter of higher gas price citing investors’ sentiments," a source said. An increase of 41 per unit gas price would raise urea’s cost by Rs 3,155 for 35 Million tonnes per annum output. Power cost will go up by Rs 0.45 per unit, auto gas (CNG) by Rs 2.81 per unit in Delhi and piped natural gas byRs 1.89 per unit, government sources said.

Consumers are facing a severe shortage of natural gas. Oil and gas firms say that the shortage will increase unless the gas price gives companies the incentive to increase exploration. They argue that this will force consumers to import more LNG, which costs around $15 per unit.

However, consumers say that many of their plants would be unviable if producers are given a free hand to price the gas.

They demand that gas prices should be linked to the cost of production. In a recently circulated discussion paper on long-term energy security, Vikay Kelkar-committee has said a cost-plus pricing regime would not be prudent.

"The cost-plus model was earlier followed in China; however, initiatives have been taken to move away from the model due to its inherent limitations.

Before 1987, wellhead gas prices in the US had been fixed on a cost-plus basis, but it was unsuccessful and led to several disruptions and supply shortages," the Kelkar’s note said.

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