EC bows to Arvind Kejriwal's Aam Aadmi Party, stops gas price hike which govt notified on Jan 10

Written by fe Bureau | New Delhi, Mumbai | Updated: Mar 25 2014, 13:58pm hrs
Reliance IndustriesThe guidelines for the price revision based on the Rangarajan formula was notified by the petroleum ministry on January 10 (AP)
In a decision that would upset the calculations of state-run and private oil and gas companies and which analysts said defied logic, the Election Commission has asked the government to defer the gas price hike that was to be effective from April 1. This leaves the matter to the next government.

In a late evening development on Monday, the Election Commission wrote to petroleum secretary Saurabh Chandra: ...after taking into account all relevant facts, including the fact that the matter is sub-judice in the Supreme Court, the Commission has decided that the proposal (for gas price hike) may be deferred."

The guidelines for the price revision based on the Rangarajan formula was notified by the petroleum ministry on January 10, following the Cabinet approval of the formula for all producers, except Reliance Industries, in June last year and, subsequently, for RIL too in December. If the formula is applied at the current level of benchmark prices proposed, it would lead to a near doubling of the domestic gas price from $4.2/million metric British thermal units now.

Kirit Parikh, former member of the Planning Commission and a noted energy expert who wrote many reports on the country's energy policy revamp, said: The decision to hike the gas price was taken (by the government) long ago and not with the elections in mind. I cannot see the reason for the Election Commission to interfere now. There is no logic in this.

In a similar vein, RS Sharma, former CMD of state-run ONGC, said: I feel extremely disappointed with the decision of the Election Commission. This (would lead to) continuance of the whole uncertainty around the price hike issue. The EC should have allowed the notification to go through.

The commission's model code of conduct came into force on March 5 as the country would begin voting starting next month to elect a new government at the Centre. Earlier, AAP leader Arvind Kejriwal wrote to the commission saying the gas price hike was a violation of the model code of conduct and alleged that the decision was aimed at providing windfall gains to the Mukesh Ambani-controlled Reliance Industries. Separately, the government and RIL are gong into an arbitration over whether KG-D6 gas output was deliberately suppressed by the operators to pitch for a price hike.

The UPA government has maintained that the decision to hike the gas price pending the arbitration was taken by the Union Cabinet last year and would be implemented by April 1. It added that not only RIL and private companies, but PSUs like ONGC would also benefit from the price hike.

Even as the EC decision was pending, however, there were hurdles for RIL's foreign partners, BP and Niko Resources, to be eligible for higher gas price as the ministry refused to recognise them as parties to an ongoing arbitration in a related matter. The ministry of petroleum and natural gas was considering seeking the Cabinet Committee on Economic Affairs' nod on several roadblocks it could come across.

As reported by FE earlier, BP and Niko Resources were weighing issuing separate notices of arbitration to the government against the $1.8-billion penalty for the fall in KG D6 gas output, hoping that this would enable them to hike the price provided they gave bank guarantees to the government as in the case of Reliance, equivalent to the incremental revenue.

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