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A section of government against gas price revision formula

LiveMint logoLiveMint 09-06-2014 Utpal Bhaskar

New Delhi: In a development that may further convolute the vexed issue of raising domestic gas prices, a section of the National Democratic Alliance (NDA) government is against the contentious price formula suggested by the C. Rangarajan committee.

While the previous government had intended the increase, doubling the price of gas, to be effective from April, the hike could not be implemented after the Election Commission directed the Government on 24 March to defer it until after the April-May general elections were completed.

The new price is based on a formula suggested by a panel headed by Rangarajan, former Reserve Bank of India governor and former chairman of the prime minister’s economic advisory council.

The price based on the formula changes every quarter. This would have priced the fuel at $8-8.5 per million metric British thermal unit (mmBtu), at which natural gas was to be sold to producers of power, fertilizers, minerals and steel by domestic gas producers, including Mukesh Ambani ’s Reliance Industries Ltd (RIL) and Oil and Natural Gas Corp. Ltd (ONGC).

A senior government functionary requesting anonymity disclosed that there are reservations against the Rangarajan formula. The person did not elaborate further.

An RIL spokesperson declined comment.

Rangarajan had suggested a pricing formula in which the final base price was arrived at by the simple average of the respective weighted averages of the prices of imported gas across sectors over a 12-month period and that of prices in the three major international gas trading hubs. These are the US Henry Hub, the UK National Balancing Point and Japan’s custom-cleared rate.

There had been discontent within the previous government and outside over the decision to increase domestic gas prices, overriding resistance from the ministries of power and fertilizer. The ministries of power and fertilizer were upset that key concerns, such as the pricing of domestic resources in foreign currency and the likelihood of a steep increase in the price of power, were ignored.

The decision for the revision of the gas price attracted controversy when it was announced in June last year as it was also opposed by the Parliamentary Standing Committee on finance.

RIL, with its partners UK oil and gas company BP Plc (BP) and Canadian explorer Niko Resources Ltd, has slapped an arbitration notice on the government of India, seeking implementation of the hike in natural gas price notified by the government on 10 January, 2014.

“The continuing delay on part of the Government of India in notifying the price in accordance with the approved formula for the Gas to be sold has left the Parties with no other option but to pursue this course of action. Without this clarity, the parties are unable to sanction planned investments of close to $4 billion this year,” said a statement jointly issued by the companies on 10 May.

Communist Party of India leader Gurudas Dasgupta and a non-governmental organization have petitioned against the gas-pricing formula approved by the cabinet committee on economic affairs (CCEA).

The Aam Aadmi Party (AAP) has also sought a deferment of the gas price hike. AAP leader Arvind Kejriwal had in his short-lived stint as Delhi chief minister ordered a first information report against the then oil minister M. Veerappa Moily, RIL chief Mukesh Ambani and others for allegedly conspiring to double gas prices.

In a note attached to the arbitration notice, RIL said that the delay in notifying the higher prices of gas has resulted in a loss of `300 crore per month.

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