Decision on gas price unlikely by month-end deadline

New Delhi : With Finance Minister Arun Jaitley yet to be discharged from hospital till forenoon Wednesday, the day scheduled for holding cabinet meetings, it increasingly appears unlikely the government will meet its month end deadline for announcing the new price for domestic gas.

This is because Prime Minster Narendra Modi is slated to leave for the US Thursday afternoon.

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The finance minister’s presence is essential for the meeting of the Cabinet Committee on Economic Affairs, while a senior source from the ministry told IANS that Jaitley is still in hospital.

The four-member Committee of Secretaries (CoS) set up by the government to review the gas-pricing formula has submitted its report to the petroleum ministry.

The government last month constituted a committee comprising the secretaries of power, fertilizer and expenditure with Rajive Kumar, additional secretary in the petroleum ministry, as its member secretary.

The committee has held discussions with representatives of both gas producers and consumers on the issue.

Sep 30 is the deadline for announcing the new gas price.

A final decision on pricing, however, could be further delayed due to assembly elections in Maharashtra and Haryana next month, the official told IANS.

The committee’s brief is to examine the whole range of issues related to gas pricing, including the Rangarajan Committee formula, which was approved by the previous UPA government but could not be implemented as the Election Commission barred price announcement in the period leading up to general elections.

A new price based on the Rangarajan Committee formula would have most likely doubled the gas price to $8.4 per unit from April 1.

The Cabinet Committee on Economic Affairs on June 25 decided to defer implementation of the Rangarajan formula till Sep 30 and come up with a new regime by Oct 1.

The Mukesh Ambani-led Reliance Industries (RIL) and its partners British oil giant BP and Niko Resources have served an arbitration notice on the government on revising their gas price, which expired on March 31 this year.

The oil ministry, on the other hand, has imposed a penalty on the company for failing to meet output targets from RIL-led consortium’s D-1 and D-3 fields in the KG-D6 eastern offshore block to the extent of 1.9 trillion cubic feet of gas.

There has been opposition to the Rangarajan formula from various quarters on account of its likely impact on electricity tariff, urea cost, CNG rates and piped cooking gas price.

Every dollar increase in gas rates will lead to a Rs.1,370 per tonne rise in urea production costs and a 45 paise per unit increase in electricity tariff. There would be a minimum Rs.2.81 per kg increase in CNG rates, and a Rs.1.89 per standard cubic metre hike in piped cooking gas cost.

Meanwhile, a committee led by former finance secretary Vijay Kelkar has recommended market-linked pricing for domestic natural gas.

A consultation paper sent to the petroleum ministry by the Kelkar Committee, formed by the previous UPA government last year to suggest a roadmap for cutting import dependency in the hydrocarbon sector by 2030, has suggested market determined pricing for natural gas to make new exploration and production activities viable.

Parliamentary Standing Committees on Finance as well as Petroleum had called for a review of the formula suggested by the Rangarajan panel, saying gas price should have some linkage with the cost of production.

In their submission to the secretaries panel, energy producers have demanded a natural gas pricing policy that is “legitimate, relevant and credible” to maintain investor interest in Indian E&P sector.

State-run explorer Oil and natural Gas Corp has said it needs $6-7.15 per unit to break even on gas it plans to produce from its KG basin block and a price of between $5.25-17.80 per unit to break-even on production planned from seven small fields in the western offshore.