They are worried over the fallout of a hike in the price of domestically produced natural gas, as is being demanded by some corporate groups

Worried over the fallout of a hike in the price of domestically produced natural gas, as is being demanded by some corporate groups, the Prime Minister’s Office (PMO) and the Cabinet Secretariat “returned back” the Cabinet note on gas pricing to the Petroleum Ministry, asking it to again seek inter-Ministerial consultations in view of divergent opinions on the issue.

Highly placed sources in the government said the PMO and the Cabinet Secretariat were of the view that since implications of a gas price hike were huge for the power and the fertilizer sectors, and both the respective Ministries (Power and Fertilizer) were strongly against doubling gas prices as recommended by the Rangarajan panel, it would be appropriate to seek inter-Ministerial views on the issue once more.

“We will again float the CCEA note for views of the various Ministries on the issue and then go back to the Cabinet. The Petroleum Ministry has not by any means recommended doubling of natural gas prices. We are for a rationale approach to the whole issue so that it does not harm the interests of the consumers or the investors,” a senior Petroleum Ministry official noted.

The Petroleum and Natural Gas Ministry floated a Cabinet note on the issue for the Cabinet Committee on Economic Affairs (CCEA). But it faced stiff opposition from the Power and Fertilizer Ministries, which alleged that it would lead to a hike in fertilizer prices and power tariffs, thereby imposing a huge financial burden on the government and consumers.

The Left parties, led by CPI (M) MP Tapen Sen and CPI MP Gurudas Dasgupta, also raised serious concerns over the move and charged that the Petroleum Ministry was working for the benefit of Mukesh Ambani-owned Reliance Industries Limited (RIL). The price reportedly recommended by the Ministry in the CCEA note is around $6.775 per million British thermal unit (mmBtu), as against the current rate of $4.2 per mmBtu. RIL is seeking a price of around $12 to $12 mmBtu, at par with the landing cost of imported LNG.

The Power Ministry argued that the Petroleum Ministry’s move to raise natural gas prices by almost 60 to 100 per cent would double the electricity tariff and have a whopping Rs. 46,360 crore per annum impact on power plants. The variable cost of generating electricity at the 2014 gas prices will be around Rs. 5.40 per kilowatt hour (per unit), taking the total cost of generation to around Rs. 6.40 per unit. Thus, it opined that the base price of domestic gas beyond $5 per mmBtu was not viable for the power sector.

Subsidy increase

On the other hand, the Fertilizer Ministry said higher gas price would result in a Rs. 10,000 crore per annum increase in urea subsidy burden. Every increase in gas price by a dollar, according to it, would increase the cost of producing urea by over Rs. 2,466 crore. At $8.8 per mmBtu gas price, the enhanced production cost would result in Rs. 10,000-crore additional subsidy outgo.

More In: Industry | Business