Has the government lost its mind? Or is it lying?

The government’s decision to allow gas to be priced at a mindboggling $8.4 against the existing $4.2 per million British thermal unit (mmbtu), from April next year, defies logic.

The figures put out by the government of the additional costs, to different sectors of the industry, at being not more than Rs30,000 crore are bizarre. They are at best hallucinatory. At worst, they are an attempt to concoct numbers to mislead the public.

Take the actual facts. Since these revised prices of gas are to be effected from April 2014, and as the figures for 2014-15 are not available, let us accept the figures provided by the Rangarajan Committee for 2016-17 instead.

The Rangarajan Committee report talks about a demand for 207 MSCMD (million metric standard cubic metres per day), just for the power sector, in 2016-17.  That translates to 2.998 billion mmbtu. Multiply this by $4 and you get a price increase of $11.99 billion each year. Multiply this by Rs60 to a dollar and you get an additional bill of Rs72,000 crore just for the power sector alone. And these are recurring annual costs.

Take the next figure of 106 MSCMD for the fertilizer sector. That translates into 1.54 billion mmbtu, which in turn indicates an additional cost of $6.14 billion or Rs36,847 crore.

For city gas, the additional costs will be Rs15,990 crore. Sponge iron units will have cough up Rs2,780 crore extra; other industrial users will have to bear an additional burden of Rs9,385 crore; and internal usage by the petrochemical sector will have pick up an additional tab of around Rs25,000 crore.

Cumulatively, the additional cost, only on account of the increased gas price, will be Rs1.62 lakh crore rupees ($27 billion) per annum. Now compare them with the figures given out by the government. It is trying to lie its way out? There are three other disturbing issues which Indians need to consider.

No developing country charges domestic industry international rates for a natural resource, especially if all natural resources belong to the government. The idea is to make domestic industry more competitive. Someone has clearly overlooked domestic strategic competitiveness in favour of international pricing. 
By that logic, why don’t we have international pricing for water? Or even coal?

Moreover, even at current electricity tariffs, energy intensive manufacturing activity has already been rendered uncompetitive in India. Compare the tariffs of 5-10 cents/kWh in most countries (Rs3-6) with Rs8-12 that the Indian industry already pays. Are we trying to make Indian industry even less competitive?

The only way the government will try to minimize these numbers is by transferring all the increased gas prices to the fertilizer industry, where all input costs are a pass-through. Since fertilizer costs are subsidised by the government, does this mean that the government subsidy to the agriculture sector will soar by a whopping 1.62 lakh crore? Is India trying to further devalue the rupee to say Rs100 to a US$?

P Chidambaram, the union finance minister, says that the higher prices are to boost investment.  If that is the case, please allow accelerated investment into the coal sector, which allows for power generation at around Rs3.5 to 4.5 per unit (the higher cost is for imported coal).

The only industry which cannot run without gas is the fertilizer industry. But at these higher costs, it will be cheaper to import fertilizer, or to enter into a joint venture for producing fertilisers in the US or in Abu Dhabi where gas costs range between $2-4 per mmbtu.

Then, why pray, did the cabinet committee not consider these issues?

The author is consulting editor with dna