The proposal for the doubling of natural gas price made by the Rangarajan committee has the oil and power ministries at loggerheads. Sources said that the power ministry has held back its comments on the draft proposal circulated by the petroleum ministry for consultations as it does not want to be seen on the side of a move that it believes is not in the interest of the power sector. However, the oil ministry wants power ministry to be on board over the issue and therefore has issued a strong reminder with a warning, ?In case no comments are received by April 5, it would be presumed that your ministry has no comments to offer.?
When contacted, power secretary P Uma Shankar declined to say anything about his ministry? stand on the proposal. The formula suggested by the committee gives a 50% weightage to prices in the US, Europe and Japan put together and other 50% to the imported LNG (liquefied natural gas) in India.
Although power sector has the biggest demand for domestic gas, it is highly price sensitive due to the regulated electricity tariff regime in the country. Besides, it comes third on the government?s gas allocation priority.
Industry watchers are puzzled over the power ministry?s inaction on this issue in view of its potential impact on electricity tariff. ?Every $1 hike in gas price would necessitate a R0.5/ unit increase in electricity tariff,? said an industry expert.
?At the prevailing $4.2 per million British thermal unit (mmbtu) price of domestic gas, electricity generation costs work out to R2.1 a unit. If gas price is hiked to $8-8.5 a mmbtu as recommended by the Rangrajan panel, generation costs could double,? he added.
Under the prevailing regulatory regime, power buying distribution companies (discoms) can refuse buying costly power citing its potential impact on their retail electricity tariff. In that case, power plants would have no choice but to reduce generation, which could impact their profitability. In that context, power producers have opposed the gas price hike proposal .
The power ministry?s stand contrasts with the loud opposition by the fertiliser ministry to the gas price hike proposal. The latter has also found support from the finance ministry which fears a sharp hike in its fertiliser subsidy outgo in case the Rangrajan panel?s suggestion is accepted by the government.
Gas accounts for over three-fourths of the cost of production of urea, a key fertiliser. As per an estimate, every $1 per mmbtu hike in gas price entails additional fertiliser subsidy burden of R2,300 crore/year. The government?s subsidy outgo on fertiliser is estimated to cross R1 lakh crore in the fiscal 2012-13.