Natural gas price hike: Fearing public backlash, PM Narendra Modi govt eyes soft solution

PTI Posted online: Monday, Jun 23, 2014 at 0000 hrs
New Delhi : For the second day in succession, hectic top-level parleys continued today as PM Narendra Modi sought to hammer out a more palatable increase in natural gas prices that would boost production and not impose a heavy burden on consumers.

Finance Minister Arun Jaitley and Oil Minister Dharmendra Pradhan, who met Prime Minister Narendra Modi yesterday, were in the Prime Minister's Office again today to discuss possible tweaks to the Rangarajan price formula, under which the price of gas would rise to USD 8.8 from July from USD 4.2 currently.

Sources said the new government was looking at making some changes in the previous United Progressive Alliance-government approved Rangarajan price formula, which will result in a steep rise in the prices of electricity, urea, CNG and piped cooking gas.

While the new government is keen to take an early decision, it doesn't want to add to already high inflation, which may accelerate due to a below-normal monsoon and a spike in oil prices in the aftermath of the Iraq crisis.

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

If the Rangarajan formula is implemented without changes, power tariff will rise by about Rs 2 per unit and CNG rates will jump by over Rs 12 per kg in Delhi.

Sources said replacing or removing some elements of the formula to bring the revised rate to USD 7 per million British thermal units, or at best USD 7.5, are among the options being explored.

Another possibility is to allow higher prices only on output that exceeds current production, or on production from fields discovered under the New Exploration Licensing Policy such as the Reliance Industries-operated KG-D6 fields. This would exclude state-owned firms including ONGC, which produce gas from pre-NELP blocks, from the revision.

Keeping state firms out of the price revision would mean there will be no hike in CNG and piped cooking gas price because their input comes from ONGC fields.

An increase in the rate for RIL, which along with partner BP plc had slapped an arbitration notice against the delay in implementation of the new rate from April 1, when the old rate expired, would make only fertiliser costlier, which the government can subsidise.

No KG-D6 gas is supplied to power or CNG companies and the new rate would make its deepsea finds viable.

Sources said a final call on the rate to be implemented may be taken by the Cabinet.

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

Sources said there is a thought that high-priced Japanese imports, which have no relevance to India, should be excluded from the formula to limit the gas price increase to about USD 7-7.5.

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

The oil ministry had on April 21 told Reliance Industries, which had been supplying gas from its eastern offshore KG-D6 field at the 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 does not want to miss this deadline.