Natural gas price hike on mind, PM Narendra Modi meets Arun Jaitley, Pradhan; Reliance Industries weighs

PTI Posted online: Sunday, Jun 22, 2014 at 0000 hrs
New Delhi : Prime Minister Narendra Modi today met Oil Minister Dharmendra Pradhan for the second time in three days, apparently to hammer out an acceptable natural gas price hike that could be announced soon.

After nearly five hours of discussion on issues facing energy sector on Friday, Narendra Modi again called a meeting today with Pradhan where Finance Minister Arun Jaitley also joined.

Sources said at the Friday meeting the gas price revision was flagged as one of the immediate decisions that the new government needs to take to revive investor interest in the stagnant oil and gas sector.

While the new government is keen to take an early decision on the issue, it may be looking at moderating the proposed increase - from current USD 4.2 per million British thermal unit to USD 8.4, they said adding a new rate may be announced as early as this week.

Oil and gas producers say the current USD 4.2 per million British thermal unit rate is not enough to help produce from new finds in deepsea, but a new formula that had been approved by the previous government will result in increase in electricity tariff, urea cost, CNG rates and piped cooking gas price.

Given that inflation is already high and recent rise in food prices in anticipation of below-normal monsoon will add to it, the new government is debating if gas rates should be revised now and add further to inflation, they said.

Every dollar increase in gas price will lead to Rs 1,370 per ton rise in urea production cost and 45 paise per unit increase in electricity tariff. Besides, it will lead to a minimum of Rs 2.81 per kg increase in CNG price and Rs 1.89 per standard cubic meter hike in piped cooking gas.

The new government, sources said, is mulling if the Rangarajan formula approved by the previous UPA government for pricing of all domestically produced natural gas, should be tweaked or certain modifications made in its implementation.

The Rangarajan formula calls for pricing rates at an average cost of importing liquefied natural gas (LNG) into India and rates prevailing on international hubs in US and UK as well as price of gas imported into Japan.

Sources said there is a thought that the high priced Japanese imports, which have no relevance to India, should be excluded from the formula to bring down the gas price from USD 8.4 as arrived at using Rangarajan formula, to about USD 7-7.5.

Another possibility, proposed two weeks ago, is to allow higher prices only on output that is in excess of current production; or to allow higher gas prices only for production from fields discovered under the New Exploration Licensing Policy like Reliance Industries-operated KG-D6 fields. This would mean state-owned ONGC, whose gas production comes from pre-NELP blocks, being kept out of price revision.

If this option is accepted, the new rate will apply to only 15 per cent of the domestic production (basically only KG-D6 of RIL), sources said.

The previous UPA government had in December last year approved a new formula for pricing all domestic gas from April 1 but general elections were declared before the new rate could be announced.

The oil ministry had on April 21 told Reliance Industries, who had been supplying gas from its eastern offshore KG-Df field at old price of USD 4.2 even after it expired on March 31, that the new rate will be implemented from July 1.

Sources said the government, which has been slapped with an arbitration notice by RIL and its partner BP for delay in implementation of the due gas price revision, does not want to miss this deadline.