Parliamentary Standing Committee on Finance urges government to come out with fresh pricing “which is more balanced and holistic”

The controversy over gas pricing took an interesting turn on Friday when the Yashwant Sinha-led Parliamentary Standing Committee on Finance adopted a draft report seeking a rethink on the Rangarajan formula and urging the UPA government to review its decision to increase prices from April 2014.

Members of the BJP, the Biju Janata Dal, the Shiv Sena, the Janata Dal (United) and the Left joined hands to support adoption of the report amid opposition from Congress MPs. The BSP and SP members sought a clarification of certain aspects of the report but did not oppose its adoption. Sanjay Nirupam, along with another MP, decided to give a dissenting note.

The Union Ministries of Power and Chemicals and Fertilizers have already made clear their strong opposition to the decision to increase the prices, arguing it would push up power tariffs and fertilizer cost and put a huge financial burden on farmers. The Left parties have sought a review of the formula which, they said, was aimed at benefiting certain corporate houses.

The Committee report recommended that the government forthwith review its decision and come out with fresh pricing “which is more balanced and holistic and closely related to the audited cost of production…” “The government needs to rethink certain elements in the pricing formula suggested by the Rangarajan panel, which only serves to push up the Indian gas price higher than it ought to be. A more realistic formulation better suited to our current priorities may be evolved,” says the report.

It favours a cap on the price suggested under the formula, and for this purpose, there should be a ceiling price. Gas producers should not be allowed to reap unlimited gains in the event of an upswing in global prices at the expense of the core sectors of the economy. “The government should also subject gas producers to closer regulation, especially on cost recovery and technical parameters related to production. A comprehensive technical study on cost estimates of gas production should be conducted for this purpose.”

The report said the Ministries of Petroleum and Natural Gas, and Chemicals and Fertilizers and the Planning Commission conceded before the Committee that an increase in gas price would affect fertilizer prices: a hike in the gas price by $1 per mbtu would result in an increase in urea production cost by Rs. 24,893. Therefore, the additional subsidy liability on domestic urea would roughly be Rs. 24,893 per tonne. If gas prices increase by $1 mbtu, the increase in urea production cost would be Rs.1,369.50 a tonne.

The Planning Commission submitted that the Central Electricity Authority (CEA) and the Association of Power Producers estimated that 90 mmscmd gas was required to operate 24,000-MW capacity at 75 per cent plant load factor. The current supply was just 27 mmscmd, with a shortfall of 63 mmscmd. The new plants of about 8,700-MW capacity were likely to remain idle if gas was not made available.

Referring to the continued decline in production, the report said the government must ensure that the contractor responsible for delivering the major chunk of gas from the Krishna Godavari D6 gasfield made good the shortfall, as per the agreement, at the old price of $4.2 mbtu, rather than getting the benefit of the new price for the previous commitments.

The report said revenue loss should be quantified over this period to grasp the implications of the price revision for the Union budget. “Instead of hurrying with the decisions having wider ramifications for the country as a whole, a broader consultative process involving all stakeholders should be put in place. The valid concerns expressed by key economic Ministries… like Power, Fertilizer and Steel should be duly addressed before the policy is finalised.”