Cabinet Committee on Economic Affairs defers decision on natural gas price hike

The Cabinet Committee on Economic Affairs (CCEA) on Friday deferred a decision on a proposal to hike natural gas prices by a steep 60 per cent as Oil Minister M Veerappa Moily was away on an official tour.

Moily's proposal to raise gas prices to USD 6.775 million British thermal unit (mmBtu) from current USD 4.2 mmBtu, which would result in a steep rise in electricity tariff, urea manufacturing cost as well as CNG rates, was listed for consideration of CCEA.

The CCEA, however, "deferred a decision", said a senior minister attending the meeting chaired by Prime Minister Manmohan Singh.

The Oil Ministry had moved a note for an across-the-board hike in gas prices for consideration of CCEA on Wednesday and it was listed as number 7 among the eight items the Cabinet sub-committee was to consider.

However, with Moily in Tripura for the inauguration of ONGC's power plant by President Pranab Mukherjee, the CCEA deferred a decision.

The gas price hike, while triggering investment in gas hunt in the country and the resultant production hike, is being opposed in some quarters as it would lead to a rise in cost of generating electricity and urea production.

Owing to the opposition there is speculation that the proposal may be referred to a ministerial panel for further deliberations.

The minister said another Oil Ministry's agenda - presentation of a status report on implementation of ethanol-blend petrol programme, too was deferred by CCEA.

The Oil Ministry proposed to price domestically-produced natural gas as per a complex international hub and imported LNG based formula suggested by the Rangarajan Committee.

The price as per the formula in the current quarter comes to USD 6.775 and may rise to USD 8 by next year and USD 10 in the following.

While the revised rates would apply to state-owned gas producers like ONGC immediately, the same for Reliance Industries would be applicable from next due date or into effect from April 1, 2014. The price of gas as per the formula then would be in excess of USD 8.

A rise in gas price will result in more than doubling of electricity tariff and a whopping Rs 46,360 crore per annum impact on power plants.

Sources said the variable cost of generating electricity at the 2014 gas prices would be around Rs 5.40 per kilowatt hour (per unit), taking the total cost of generation to around Rs 6.40 per unit.

The cost of electricity generation at current delivered price of USD 6.93 per mmBtu (base price of USD 4.2 plus taxes and transportation), comes to Rs 2.93 per unit, they said adding the Power Ministry feels generating electricity at Rs 6.40 per unit is not viable.

With the cost of every dollar increase in gas price assuming that the delivered price increases to USD 1.3 per mmBtu, the impact on power sector will be about Rs 6,450 crore, the note states. At 2014 gas price, the impact would be Rs 46,360 crore per annum.

The hike in natural gas price by USD 1 would result in Rs 3,155 crore per annum hit on fertiliser plants for producing 23 million tonnes of urea this fiscal and Rs 4,144 crore a year for 32 million tonnes of urea production from 2017-18, sources added.