Seeking laying out of a roadmap to moderate the impact of gas price hike with increased availability to the power sector, the Association of Power Producers (APP) has asserted that new gas price of around $8 to 8.5 mmbtu proposed by the Rangarajan Committee would have far reaching implications for various sectors and put an additional financial burden of Rs. 7200 crore per annum.

In a representation the Prime Minister’s Office (PMO) as well as the Petroleum and Natural Gas Minister, Veerappa Moily on adoption of new pricing formula, APP has said since the power sector receives over 30 mmscmd of gas from various sources, the additional cost on account of this is likely to be around Rs. 7200 crore.

“As the Committee’s recommendations are far reaching in nature and are likely to increase price substantially, we believe that a clear roadmap should be laid out to moderate the impact and increase the gas availability to the power sector,” it added.

However, APP said proposed gas pricing formula effectively counts Japanese import price twice. The Japanese market has very high appetite for LNG and the LNG import price into Japan is usually much higher than rest of the global market. It has been reported that one of the components in gas pricing formula is an average of Indian LNG import price, which is often linked to the Japan Korea Market index. Another component is the weighted average of three international hub prices, of which Japan is a large portion and is effectively counted again.

“The formula suggested by the Rangarajan Commiteee counts the Japanese LNG import price twice. Since Japan LNG import price has historically been much higher than the global market, this would have a distortionary effect on gas pricing. In order to moderate this, the Japanese import price may be removed from the hub prices. This would greatly moderate prices and could be considered,” the APP representation said.

It said to incentivise increasing as production, it would be necessary that the government consider making the new gas pricing formula applicable for production over and above the approved development plan of existing discoveries and for new discoveries.