Ministries lock horns over gas pricing

Anupama Airy

New Delhi, Dec 2: The petroleum ministry’s proposal to link natural gas prices to 100 per cent fuel oil parity, as part of dismantling of the APM from April 1, 2002, has drawn strong objections from the ministry of finance, which has suggested that gas prices be increased at a flat rate of Rs 600 per year, for the next few years, by when prices would have reached open market levels.

While the petroleum ministry has taken a stand that linking gas prices to 100 per cent fuel oil parity is a must if APM has to be dismantled from April, the Department of Expenditure (in a letter to the ministry) has stated, “The dismantling of APM be deferred and gas prices may be increased at a flat rate of Rs 600 per year till determined price in future year is reached.”

The current price of domestic natural gas in India is fixed at 75 per cent fuel oil parity with a cap of Rs 2,850 per thousand standard cubic metre (SCM). Of the total gas production, fertiliser and power sectors account for about 78 per cent of gas consumption. At 100 per cent parity, the basic consumer price of natural gas will rise to Rs 3,968 per thousand cubic metre (at $18 a barrel of crude oil prices).

Sources said that the move for linking gas prices to 100 per cent fuel oil parity has also been objected to by other ministries including power and, chemicals and fertilisers. Justifying its stand, petroleum ministry has suggested that for consumption of natural gas by the fertiliser sector, the ministry of finance should make provisions in the Budget for giving subsidy to the urea units as is being done in the case of kerosene for public distribution and domestic LPG.

Even for consumers in the North-East, the ministry has suggested that subsidy could be provided at the current rates (at present as against the ceiling price of Rs 2,850 per thousand SCM, Rs 1,750 per thousand SCM is charged) and the same should be met through the Budgetary provisions.

Justifying these subsidies, petroleum ministry has stated (in a letter to the expenditure secretary) that the incremental revenue inflows to the Centre on account of increased royalty, dividends and corporate taxes in the post-APM era would more than compensate for revenue outgo on account of subsidies to urea units and consumers in the North-East.

The nodal ministry is learnt to have already moved a Cabinet note in this regard. However, officials feel that amidst objections the proposal is unlikly to get Cabinet nod.

“This proposal may also meet the same fate as that of the integerated LNG policy, which was deferred by the Cabinet last week, due to some inter-ministerial differences on a host of issues in the Cabinet note,” commented a senior bureaucrat from one of the concerned ministries.

It should be noted here that the petroleum ministry’s proposal is in accordance with 1997 Cabinet decision where it was decided that the natural gas prices at land fall points had to be linked to 100 per cent parity price of basket of fuel oils by 2001-02.