Narendra Modi govt to appt panel to review gas price formula, inducts Pratap Bhanu Mehta

Written by PTI | New Delhi | Updated: Jul 24 2014, 21:58pm hrs
GasSince we did not have time to appoint an expert group or engage organisations having some generic expertise in the area.(Reuter
A month after it put on hold the previous UPA government's decision to double gas prices, the Narendra Modi government is appointing a panel headed by former Power Minister Suresh Prabhu to suggest an alternative pricing model.

Worried about the cascading impact of doubling of gas rates on power tariff, urea cost and retail price of CNG and piped cooking gas, the government will appoint a three-member committee to review the formula approved by the previous government, a source said.

The panel, which will comprise of Pratap Bhanu Mehta and Bibek Debroy, Chief Executive and faculty respectively, of think-tank Centre for Policy Research, will be asked to submit its report by August 31.

The new government had on June 25 deferred implementation of the Rangarajan formula which would have doubled natural gas prices to at least USD 8.4 per million British thermal unit, till September-end to conduct a comprehensive review of the whole issue.

"Since we did not have time to appoint an expert group or engage organisations having some generic expertise in the area, a group of eminent persons is being set up," the source added.

The indicative terms of reference for the committee includes "revisiting the Natural Gas Pricing Guidelines of 2014 (notified on January 10, 2014) and the Rangarajan formula and the possibility of applying the same in its present form or with modifications".

It will consider the issue keeping in view the pricing regimes prevailing in various countries, provisions of the Production Sharing Contracts like the one entered into by the government with Reliance Industries for eastern offshore KG-D6 block, impact on other sectors such as power and fertiliser, on exploration activities in the country and on the economy as a whole.

The panel has been asked to hold extensive consultations with various stakeholders as also consider "observations made by Parliamentary Standing Committee" on the issue.

It has also been asked to look into contractual and legal requirements if an alternative to the Rangarajan formula is suggested.

According to Rangarajan formula, gas prices were to be revised every quarter, and rates for this quarter would have been USD 8.8 per million British thermal unit, leading to hike in power cost by over Rs 2 per unit, urea production cost by Rs 6,228 per tonne, piped gas by Rs 8.50 per kg and CNG by Rs 12 per kg.

Both Parliamentary Standing Committee on Finance and the Standing Committee on Petroleum had made adverse comments on the formula and called for looking at cost of production before deciding on the new rates.

Yesterday in Parliament, Oil Minister Dharmendra Pradhan had stated that the cost of production of natural gas varies between USD 1.86 per mmBtu to USD 4.31 per mmBtu.

After including levies, this would be USD 2.47 to USD 4.80 per mmBtu.

The source said the panel will consider pricing regimes in other countries, production sharing contracts signed between exploration firms and the government, impact of price revision on power, fertiliser, economy, the gas demand-supply scenario and price impact on exploration activities.

The previous UPA regime had on January 10 notified the Rangarajan formula of pricing all domestically produced gas at an average of international hub rates and cost of imported liquid gas (LNG).

The formula would have doubled gas prices to USD 8.4 per million British thermal unit upon its planned implementation from April 1.

But before a new rate could be announced, general elections were declared and implementation of the new formula was deferred by three months.

On June 25, the new government decided to defer it by another three months to conduct a comprehensive review of the whole issue.