How Narendra Modi govt worked out gas pricing formula, dumped Rangarajan; 6 questions

Written by Siddhartha P Saikia | New Delhi | Updated: Oct 19 2014, 15:22pm hrs
Dharmedra PradhanThere were five basic flaws, which the Rangarajan panel tried to hide, says Dharmendra Pradhan.
Oil & natural gas minister Dharmendra Pradhan spoke to Siddhartha P Saikia on how Narendra Modi government worked out the new gas pricing formula. Edited excerpts:

You seem to have dumped the Rangarajan formula...

We have put in place a new market-determined regime. Nowhere in the world LNG (or imported) and domestically produced well-head prices are same. The UPA regime almost put into place a faulty formula that would have doubled prices.

What changes have you made to the formula

There were five basic flaws, which the Rangarajan panel tried to hide. First, they have taken the weightage of Indian LNG imports and globally demand. India consumes about 17 bcm of LNG, while it is around 2,100 bcm globally. Secondly, Japan is a gas consumer with no well-head price. Japanese prices has many hidden margins. Thirdly, Russia is a producer as well as consumer and their gas price is around $4/mmBtu. Fourth, they considered Canada's price together with Henry Hub. Fifth and most important, there are several costs such as re-gassification and transportation between the well head and hub prices.

Will the prices be on gross calorific value (GCV) or net

The prices would be on GCV. Indias gas market is based on dry gas.

What would have been the price if Rangarajan formula was implemented

The gas price would have been $9.54 per mmBtu.

Do you think this would incentivise production

Of course! That is why we have put a market-determined, transparent mechanism in place. Investments pour in when there is transparency and prices are not controlled. While saying this, we have also supported our end consumers.

There are discoveries not viable at $10/mmBtu. How would they be monetised

Agreed. That is why we have decided that the discoveries that are not viable at this price would be given a premium. Every year, the DGH would send a list of such discoveries, which would be given a premium over the prevailing gas price after consultation with the FM.