Petroleum Ministry proposes $6.7 per mbtu for the April-June quarter

The Cabinet Committee on Economic Affairs (CCEA) is understood to have recommended $6.775 per million British thermal unit (mbtu) for all domestically produced natural gas as against the present rate of $4.2 per mbtu, a hike of nearly 60 per cent, which is expected to impact the power and fertilizer sectors hard.

The gas price hike issue has been listed in the additional agenda for the CCEA meeting scheduled for Friday.

The latest recommendations contained in a CCEA note follow hectic inter-ministerial consultations and strong positions taken by the Power and Fertilizer Ministries. In fact, the Cabinet Secretariat had advised the Petroleum Ministry to move the CCEA note, as the Empowered Group of Ministers (EGoM) did not have the mandate to decide price hike. The earlier CCEA note was also returned back by the Prime Minister’s Office (PMO), asking the Petroleum Ministry to hold wider consultations on the issue and then come before the Cabinet with a revised note.

The $6.775 mbtu is lower than the $8 to $.5 mbtu suggested by the Rangarajan panel, which had suggested pricing domestic gas at an average of rates at three key international hubs — U.S. Henry Hub, National Balancing Point of the U.K. and well-head prices of supplies into Japan, and the actual cost at which India imports LNG.

The CCEA note states that the price will be revised on the quarterly basis and for the April-June quarter, it comes to $6.775 per mbtu. The Finance Ministry had suggested changes in the pricing methodology by excluding international hub rates and pricing domestic gas at rate equivalent at the actual cost of LNG to India on a long-term contract. If the suggestions are accepted by the Cabinet, then the price will come to $6.79 in the immediate future and $8.93 by the end of current fiscal. It would rise to $10.29 in 2014-15 and $10.92 in the subsequent year. Price of gas as per the Petroleum Ministry formula in the CCEA note will be close to $12 in 2014-15 and $14 in the next year. The new rates will also apply to the public sector companies. However, Reliance Industries Limited will have to wait till April 1, 2014 for the new prices to take effect. Till the last minute, the Power Ministry has pitched for a gas price of not more than $5 and no change in rates of gas produced by State-owned firms like the Oil and Natural Gas Corporation Limited and Oil India Limited. However, this suggestion was rejected by the Petroleum Ministry.

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