Defending the almost doubling of natural gas prices from the present $
4.2 mbtu to $ 8.4 mbtu, Finance Minister P. Chidambaram on Friday hinted
at power and fertiliser sectors getting some form of subsidy to cushion
the massive hike in price of gas to protect the consumers from a huge
financial burden from April 2014.
Mr. Chidambaram said, "At the moment we are fixing only output prices —
the price payable to gas producers. This will indeed have impact on the
consumer, but those prices are not being fixed today. The price power
and fertiliser companies will pay for gas are not being fixed now. What
is the price at which it should be supplied to a power plant, to a
fertiliser plant in order to make power affordable, fertiliser
affordable. That can still be decided between now and April 1."
The Finance Minister said the government was conscious of keeping power
and fertiliser prices low. "It could be tweaking prices or it could be
bearing additional subsidy. There are various methods but at the moment
we are not addressing those issues", he remarked.
Briefing journalists in New Delhi about the decision of the Cabinet
Committee on Economic Affairs (CCEA) to hike gas prices based on the
Rangarajan Committee formula from April 1, 2014, Mr. Chidambaram said
the move to hike the gas prices, almost double them, was taken in view
of dramatic decline in investments in oil and gas sector due to absence
of remunerative prices resulting in dip in production which had to be
made up for by importing expensive liquefied natural gas (LNG). It was
after an unusually long meeting, which also saw some Ministers raising
objections on the gas price hike, the CCEA approved it approved pricing
of all domestically produced natural gas at an average of the cost of
imported liquid gas (LNG) on long-term contract and international gas
benchmarks.
According to the Rangarajan committee formula, gas rates will change
every quarter based on average imported cost and international hub rates
and this formula would be valid for five years. The Power and
Fertiliser Ministers had vehemently opposed the gas price hike pleading
it would lead to cost of generating electricity spiking to Rs. 6.40 per
unit from Rs. 2.93 and nearly Rs. 9,000 crore per annum rise in cost of
urea output.
He said in absence of remunerative prices, no investment has been made
in domestic exploration and production, resulting in fall in natural gas
production from 143 million standard cubic metres per day in 2010-11 to
111.44 mmscmd in 2012-13, which in turn meant shape rise in imports of
LNG which was expensive. "Only way to correct this is to give reasonable
price which will attract this investment. For every unit of gas that we
do not produce, it does not mean we are not consuming that gas. We are
importing that one unit", he added.
Elaborating further, he said imported gas price was three times the
domestic gas rate and importing gas was unsustainable for Indian
economy. "The choice is to live without gas or to produce gas because
third alternative to import is simply not sustainable", he said. The new
price will apply uniformly to all producers, be it state-owned or
private sector companies. While it was previously said the new rates
would apply to regulated or APM gas produced by firms like ONGC
immediately, the pricing as per the Rangarajan formula will come into
effect from April 1, 2014, just when RIL's KG-D6 formula of $ 4.2/mmBtu
runs out. The Rangarajan formula would be applicable for five years.
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