It says the hike will cripple the economy and adversely impact farmers

The Left parties on Monday asked the government to put on hold the proposed hike in the price of natural gas from RIL’s KG basin.

Questioning the “hurry” for pushing the decision through in the Union Cabinet, the Left parties have asked the government to hold wider consultations with Ministries concerned and the States before taking any final call on the matter. “Any hike in the prices would cripple the economy and adversely impact farmers as it would result in the rise in the prices of power and fertilizers,” they said.

“We demand that any price increase should be kept in abeyance and the government should come out with full facts and figures and have a debate with all stakeholders before it pushes ahead with this move,” the Left leaders said.

For discussion in House

Addressing a joint press conference here, Sitaram Yechury (CPI-M) and Gurudas Dasgupta (CPI) were of the opinion that the issue should be discussed in Parliament in the coming Monsoon Session as any increase in the gas prices would be effective only from April 2014.

Demanding the setting up of a Group of Ministers on the issue which has led to “differences among major Ministries,” they claimed the move would lead to “windfall profits” to a corporate house and “a rise in the subsidy burden at least by Rs. 1.50 lakh crore annually.”

The hike is “completely unjustified” and it would have serious implications on the power and fertilizer sectors which are major consumers of natural gas, would “cripple the economy, especially the agriculture sector, and lead to greater agrarian distress and increase the incidence of farmers’ suicides,” Mr Yechury said.

In a joint statement, the CPI, the CPI (M) and the RSP said that the entire price increase/enhanced subsidy would be passed on to just a single corporate house as super normal profits, since the profit share of the private operator is 90 per cent. “Natural gas belongs to the people of the country and the government is holding it in trust for the people. They cannot be plundered by the corporates and actively be supported by the very arms of the government that are supposed to regulate them.”

“Free benefit for RIL”

With the decline in Rupee, RIL is getting free benefit as it is getting a dollar denominated price, Mr. Dasgupta claimed, even as he accused the private oil company of “systematically” reducing production from its KG Basin. The Left parties have questioned dollar prices for a resource produced domestically. Mr. Dasgupta said the government was under “duress” from a particular corporate house.

The present price of natural gas is $ 4.2 per mmbtu from April 1, 2014. While the Power and Fertilizer Ministries are opposed to the recommendations of the Rangarajan Committee and are pitching for a lower price, the Petroleum and Finance Ministries and the Planning Commission are insisting on a price even greater than the Rangarajan formula.

“Though the increase in prices would be applicable to all producers, both public sector undertakings and private companies, the super high profits of private companies will be retained by them, whereas, the government can mop up the increased revenues of PSUs [and in theory at least, be used to offset the increase in subsidy],” the Left said.

The Petroleum Ministry has agreed to the Rangarajan Committee process for three years and has recommended as price of $ 14 per mmbtu (open market prices) for the last two years. The Finance Ministry has recommended a price of $ 11 per mmbtu and the Planning Commission has recommended a price of $ 9.2 per mmbtu (on average) for three years and $ 14 per mmbtu (open market prices) for the last two years.

Considering a production of 50 mmscmd from the KG-D6 block, even with the Rangarajan formula, the subsidy implications are gigantic on account of natural gas produced from the block. It would imply an additional subsidy of Rs. 90,000 crore in the five-year period (2014-16 to 2018-19) over the current levels of fertilizer and power subsidy. With the Petroleum and Finance Ministries or the Planning Commission formula, the figure would increase further to Rs. 1,38,000 crore, Rs. 1,46,000 crore and Rs. 1,49,000 crore respectively.

“With its stretched finances, the government will not be able to meet these subsidy requirements and will perforce raise the prices of fertilizers and power. Even with the Rangarajan formula, the unit cost of power will rise by Rs. 2 per unit. The recommendations of the Petroleum and Finance Ministries and the Planning Commission would imply an average increase by Rs. 3, Rs. 2 and Rs. 3.3 per unit respectively,” the Left leaders said.

Similarly, with fertilizers, the increase in prices with the Rangarajan formula would be Rs. 6,000 per metric tonne. If the recommendations of the Petroleum and Finance Ministries and the Planning Commission were accepted, this would imply an increase of Rs. 9,200, Rs. 9,700 and Rs. 9,900 per tonne respectively.

As per the Cabinet note of June 19, an increase in the price of natural gas will increase revenue through Royalty and Profit Petroleum to be paid by producing companies. “Such an increase will depend on actual production, profit share of the government and the actual price to be paid. It is difficult to quantify the increase.”

There will be increased financial outgo from the Fertilizer Ministry for urea subsidy and the power sector would also be impacted.