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New gas price formula by September end, says government

Wednesday, 13 August 2014 - 4:53pm IST | Agency: PTI

The Government will by September end announce a new gas price formula keeping the interest of investors as well as consumers in mind, Oil Minister Dharmendra Pradhan said today. Pradhan, however, said no committee has been constituted to suggest an alternative to the Rangarajan formula approved by the previous UPA government that would have doubled the price of gas to USD 8.4 per million British thermal unit.

The Rangarajan formula was to be implemented from April 1 but was deferred by three months as general elections were announced. The NDA government on June 25 postponed its implementation by a further three months pending a comprehensive review.

Replying to questions in Rajya Sabha, Pradhan said the NDA government decided to review the pricing formula keeping in mind public interest and recommendations of the Parliamentary Standing Committee. He said a decision will be taken keeping in mind the interest of investors and public and a new formula will be announced by September 30. Till then, the USD 4.2 per mmBtu price will continue.

Parliamentary Standing Committees on Finance as well as Petroleum had called for a review of the formula suggested by the panel headed by Dr C Rangarajan saying gas price should have some linkage with the cost of production.

According to the Oil Ministry, the cost of gas production varies between USD 1.86 per mmBtu to USD 4.31 per mmBtu but a cost-plus price would be perceived negatively by the market. The gas price hike was deferred as the doubling of rates would have led to increase in cost of urea, power and CNG.

Every dollar increase in gas price will lead to a Rs 1,370 per tonne rise in urea production cost and a 45 paise per unit increase in electricity tariff (for just the 7 per cent of the nation's power generation capacity based on gas). Also, 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.

But the increase in gas price would bring windfall for the government -- about USD 2.08 billion (Rs 12,900 crore) from additional profit petroleum, royalty and taxes accruing from doubling of gas rates, the ministry estimates.




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