Within days of approving a new look gas pricing policy, the UPA II has “virtually withdrawn” the officially declared $8.4 million metric British thermal unit (mmbtu) price to be in force from April 2014, making it clear that it will be the Rangarajan formula and the market forces which will decide the price in future.

At present, on the basis of the Rangarajan formula, the price for natural gas in India for the quarter April-June 2013 comes to $6.83 per mmBtu. As per the Rangarajan formula, the price will be fixed on the basis of average of net back price of Indian gas imports and also the weighted average of the price at international hubs. The underlying principle is that the Indian producer should get a similar price what the gas producers elsewhere are getting. “At present, the gas price comes to around $6.83 mmBtu. What it will be in April 2014, it is very difficult to say as it will all depend on what is happening in the gas industry around the world and at what point are the bench mark prices ruling. But certainly it is not going to be $8.4 mmBtu which has been termed as the price from next year,” a senior Petroleum Ministry official said.

New stance

The new stance of the government is seen as fallout of the strong opposition from various quarters, including the Left parties who have slammed the government on almost doubling of the gas price hike. Now the government is trying to wriggle out of the situation by maintaining that it was not sticking to any fixed price from next year onwards, and would rather let events unfold in the run up to the April 2014 deadline to decide on the new gas price.

Deficit

An official note issued by the Petroleum and Natural Gas Ministry stated that domestic gas production has been falling drastically short of the demand and the present deficit of 142.78 million metric standard cubic metres per day (mmscmd) is expected to increase to around 234.26 mmscmd in 2016-17. Therefore, there will be huge dependence on the import of gas at much higher price of around $14 mmBtu and above, which will simply become unaffordable for consuming sector.

Subsidy burden

“The Indian economy cannot afford to continue with such a huge import bill which is around $160 billion for the import of petroleum products.

“The subsidy burden to meet core sector demand through imported LNG can go up to as high as Rs.1,20,000 crore, if the demand is not substantially met by domestic gas. Every $1 per mmBtu increase in the gas price would result in an additional burden of about $1 billion. However, approximately, half of it, that is, around $500 million will come back to the government in the form of royalty, profit, petroleum taxes and dividend”.

Officials in the Petroleum Ministry said this additional income could take care of the additional subsidy burden of fertilizer and LPG, if the government decides to absorb the burden.

At present, around 16,000 MW capacity is lying idle for want of gas supply.