The Cabinet will on Thursday decide on raising natural gas prices for the first time in three years even as the move faces stiff resistance as it would result in rise in electricity tariff and fertiliser cost.

The Oil Ministry’s proposal to price all domestically produced natural gas as per a complex international hub and imported LNG-based formula suggested by the Rangarajan panel is listed as item number 8 on the agenda of Cabinet Committee on Economic Affairs (CCEA) meeting scheduled for tomorrow.

It wants gas prices to be revised every quarter till 2017 when rates will be completely freed, sources said.

If approved, gas price will rise to USD 6.775 per million British thermal unit from USD 4.2 currently. The rates will jump to USD 8.55 in April 2014 when Reliance Industries is entitled for revision in price for its eastern offshore KG-D6 gas.

Left parties have alleged that Oil Minister M Veerappa Moily is trying to help RIL by proposing a price hike.

The CCEA, some government insiders say, may not accept the Oil Ministry’s proposal of revising prices every three months based on quarterly average of international hub and imported gas (LNG) price.

It may approve a ‘moderate’ revision but put a cap or ceiling of no more than USD 7 per mmBtu as it would be not advisable to have a fuel cost with cascading impact on the economy, change every quarter and that too based on international volatility.

Power Ministry has opposed any hike saying electricity generation at any price of over USD 5 was economically unviable. Also, it has questioned the need to price the fuel in US dollars as any depreciation in the Indian currency would further add to the strain on the consumers.

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. This compares to current cost of Rs 2.93 a unit.

The Fertiliser Ministry has shot off a letter to the Oil Ministry saying it had never supported an increase in gas price as was being brought out in the note Oil Ministry moved for consideration of the CCEA.

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.

Mr Moily says a gas price hike was essential to incentivise exploration so that domestic production is raised and imports cut.

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