Ahmedabad, April 2: The ministries of steel and petroleum and natural gas are at loggerheads over imminent plans of almost doubling gas prices by upward revision of the existing price ceiling. As per available indications, the petroleum ministry is planning to implement the increase within the next week or so, a move which the steel ministry apprehends may cripple the country's already recession-hit sponge iron industry.According to highly placed government sources the Ministry of Petroleum and Natural Gas (MOPNG) is contemplating increase in gas prices by shifting upwards the price ceiling from the existing floor price of Rs 2,150 per MCM (million cubic metres) to Rs 2,850/MCM by almost double to over Rs 5,000/MCM. The steel ministry is understandably concerned over the impact this is likely to have on the major consumers of gas, namely, the sponge iron industry, fertiliser and power sectors, which use gas as a vital basic input.
While both fertiliser and power sectors may still be able to withstand the impact of the increase in gas prices by either seeking an enhanced subsidy component or alternatively passing on the increase to their consumers, the steel ministry is apprehensive that the steel sector in particular may be forced to absorb the impact given the fact that prices in this sector are determined by the demand and supply scenario after taking into account the prevailing international prices.
Steel industry sources point out that following an increase in gas prices in South America, the three major sponge iron plants in the region were forced to down their shutters.
There are three major sponge iron plants in India, namely the Hazira-based 2.4 million tonne sponge iron plant of Essar Steel, the sponge iron plants of Ispat and Vikram Steel. Between them, the three plants produce around 5 million tonne of sponge iron which not only forms a basic input for the domestic steel industry, but is also being exported to international markets.
It is believed that the MOPNG is using the rationale of increasing the linkage of gas prices to the price of basket of fuel oil from the existing 75 per cent to 85 per cent for enhancing the cap on gas prices from the current Rs 2,850/MCM to Rs 5,600/MCM. Currently, gas prices are linked to the prices of the basket of LS (low speed) /HS (high speed) fuel oils which explains why this has increased from 55 per cent of the basket of fuel oils in 1997-98, to 75 per cent in 1999-2000. The prices are revised every quarter depending on the average price of the basket of fuel oil prices.
Copyright © 2001 Indian Express Newspapers (Bombay) Ltd.
