In a move that could put an additional financial burden of nearly Rs. 7000 to Rs. 8000 crore on the common man, the Petroleum and Natural Gas Ministry has moved the Cabinet for nearly doubling the price of domestically sold gas

Consumers across the country are likely to be burdened with another round of hike in prices including electricity tariffs, CNG powered transport, households using piped gas as the Petroleum and Natural Gas Ministry has moved the Cabinet for nearly doubling the price of domestically sold gas to $8 to 8.5 per million British thermal unit from the present $4.2 mmbtu, a move that could put an additional financial burden of nearly Rs. 7000 to Rs. 8000 crore on the common man.

Citing the recommendations of the recently set up Rangarajan Committee, which had come out with a roadmap for gas pricing, the Petroleum Ministry has sought an immediate hike in the price of gas sold by state-run Oil and Natural Gas Corporation (ONGC) and Oil India Limited (OIL) from $4.2 mmbtu to $8-8.5 mmbtu. However, in case of Mukesh Ambani-owned Reliance Industries Limited (RIL), which has been pushing for nearly tripling the gas price to around $13 mmbtu, the price hike will take effect from April 2014, the deadline set by the Empowered Group of Ministers (EGoM) in 2009.

By moving to push for almost double the hike in gas prices, the Petroleum Ministry has gone with the Rangarajan Committee recommendations for pricing domestically produced natural gas at an average of international hub prices and cost of imported LNG instead of present mechanism of market discovery. This despite plea by the Association of Power Producers (APP) that the Japanese import price formula suggested by the Rangarajan Committee should be removed from the hub prices as Japan LNG prices have been historically been much higher than the global market and this would distort the gas pricing. The APP has also contended that this would put an additional burden of Rs. 7000 to Rs. 8000 crore on the consumers.

In fact, government sources said the Petroleum Ministry has pitched that the pricing formula proposed by the panel be applied to all forms of natural gas - conventional, shale and coal-bed methane (CBM). Also, the price determined shall be applicable to all consuming sectors uniformly. The Ministry was keen on putting the recommendations into immediate effect and has strongly favoured that new prices should be applied without any further delay on all domestically produced gas barring cases where it is either governed by a definite formula prescribed in the Production Sharing Contract (PSC) or the government had previously fixed a deadline for the same.

Such a move would make gas produced from the KG basin bock of RIL automatically disqualified from revision of prices as under the EGoM approved guidelines, KG basin gas prices would be revised only after April 2014. ONGC and OIL will be the biggest beneficiaries of this government largesse this year for gas they produce from fields given to them on nomination basis by the government. Gas from nominated fields, called APM gas, is currently priced at $4.2 per mmBtu. The Rangarajan panel also suggested that rates may also not apply to BG Group-operated Panna/Mukta and Tapti fields in the Western offshore as the current rates of $5.57-5.73 per mmBtu for the fuel produced from these are derived from a pre-defined formula detailed in the PSC. However, Cairn India's eastern offshore Ravva gas, which is currently priced at $3.5-4.3 per mmBtu, may stand revised as per the latest recommendations.

The Rangarajan panel had suggested taking a weighted average of the US, Europe and Japanese gas hubs or market price and then averaging it with the net imported price of liquefied natural gas (LNG) to give sale price of domestically produced gas. Taking last year's publicly available consumption numbers and the prevailing price of gas in the three markets, the formula suggested by the Rangarajan committee gives $8-8.5 per mmBtu as the price of domestic gas.

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