Column : Can’t do gas pricing in a vacuum

The formula yields a price of $8 per million British thermal unit (mmBtu) versus the current rate of $4.2 per mmBtu for most of gas produced in country. On a landed cost basis, the increase works out to $4 per mmBtu.

This will increase the cost of producing urea by about $100 per tonne (25 mmBtu for a tonne) or R5,500. On production of 17.6 million tonnes from gas-based plants, industry will incur an extra cost of R10,000 crore.

In the view of control on MRP at a low level and unwillingness of the government to increase price even ‘marginally’, it will have to give that much additional subsidy to manufacturers. But, where is the money?

The budget allocation of R50,000 crore (2012-13) was exhausted by July 2012. Industry has not received payments for the last five months. Additional demand for R10,000 crore will compound their miseries.

The price hike will also increase the cost of power generation. For the majority of power producers, this is a pass-through under PPA with state electricity boards (SEBs)/power distribution companies (PDS). However, the latter won’t find it easy to increase tariff.

States that heavily subsidise or supply power free of charge to farmers and poor households may not increase tariff at all. This, together with T&D losses, puts SEBs/PDS under serious stress.

Unlike fertilisers, here

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