Kelkar panel for market-linked gas price to producers

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SME Times News Bureau | 29 Sep, 2014
A committee led by former finance secretary Vijay Kelkar has recommended market-linked pricing for domestic natural gas, even as a committee of secretaries is reviewing the formula recommended by the C. Rangarajan panel.

A consultation paper sent to the petroleum ministry by the Kelkar Committee, formed by the previous UPA government last year to suggest a roadmap for cutting import dependency in the hydrocarbon sector by 2030, has suggested market determined pricing for natural gas to make new exploration and production activities viable.

The Kelkar Committee has invited stakeholders' views on various aspects of the paper, a senior official told reporters Friday.

"Natural resources should be priced at the highest price possible in the market, based on market-determined pricing. This will ensure energy security for the country by encouraging domestic exploration and production, efficient use of the resource and reduction in the import burden," the paper said.

"Transition to market-determined producer prices of gas is essential to facilitate development of a gas market in the country by increasing the supply of domestic natural gas," it added.

At the end of transition period, prices to producers of natural gas should be "unfettered of any government intervention, allowing for gas pricing by producers on a market-determined basis through transparent arms length transactions," the panel said.

Regarding the impact of high gas price for consumer sectors like power and fertilizers, the panel said: "It will be unfair to supply natural gas at artificially low prices to all consumers, including those who can afford to pay a higher price in order to support the priority sector."

The priority sectors may be supported by the government, which will get more taxes, royalty and profit petroleum from higher gas price, the paper added.

During a meeting here with various stakeholders Monday of the four-member secretaries' panel on ascertaining the price of natural gas, oil operators were all in favour of a fair hike in the gas price to keep the capital-intensive operations of exploration and production of hydrocarbons profitable for both existing and new developments.

"The committee listened to the views of the stakeholders. It made no suggestions or any counter-arguments. But it has asked the participating firms to send their representation to the panel chairman," an official said.

It will examine the whole range of issues related to gas pricing, including the Rangarajan formula, which was approved by the previous UPA government, but could not be implemented ever since the Election Commission barred it from announcing the price in the period leading up to polling.

A new price based on the Rangarajan formula would have most likely doubled the gas price to $8.4 per unit from April 1.

The Cabinet Committee on Economic Affairs on June 25 decided to defer implementation of the Rangarajan formula till Sep 30 and come up with a new regime by Oct 1.

The Mukesh Ambani-led Reliance Industries (RIL) and its partners British oil giant BP and Niko Resources have served an arbitration notice on the government on revising their gas price, which expired on March 31 this year.

The new government has decided to defer the implementation till September-end to hold wider consultations with various stakeholders.

There has been opposition to the Rangarajan formula from various quarters on account of its likely effect on electricity tariff, urea cost, CNG rates and piped cooking gas price.

Every dollar increase in gas rates will lead to a Rs.1,370 per tonne rise in urea production costs and a 45 paise per unit increase in electricity tariff. There would be a minimum Rs.2.81 per kg increase in CNG rates, and a Rs.1.89 per standard cubic metre hike in piped cooking gas cost.