With the Rangarajan formula raising concerns in the government and political circles about windfall gains to corporate houses, the Yashwant Sinha-chaired Parliamentary Standing Committee on Finance has not only sought a rethink on the formula but also asked the Manmohan government to immediately review the >decision to raise gas prices from April 2014.
Backing the draft report of the Standing Committee, BJP spokesman Prakash Javadekar told The Hindu that the party’s position was the same as that articulated by Mr. Sinha.
The Power and Fertilizer Ministries have already expressed concern over the hike in gas prices and their adverse impact on power tariffs and fertilizer cost. The Left parties also sought a review of the gas pricing formula which, they alleged, was aimed at benefiting certain corporate houses.
In its draft report, “Economic Impact of Revision of Natural Gas Price,” accessed by The Hindu, the Committee strongly recommends that the government review forthwith its decision to raise gas prices and come out with fresh pricing “which is more balanced and holistic and closely related to the audited cost of production and a reasonable return on the capital invested. Arms length pricing cannot be construed to mean logic-less pricing.”
The decision to seek a review of gas prices comes close on the heels of the strong opposition the government faced from the Left and some other sections over virtually doubling of prices from April 2014.
“The government needs to rethink certain elements in the pricing formula suggested by the Rangarajan panel, which only serves to push the Indian gas price higher than it ought to be. A more realistic formulation better suited to our current priorities may be evolved,” says the draft report. Further, there should be a cap on the suggested price under the formula and for this purpose, there should be a ceiling price. It cannot be the case that gas producers will be allowed to reap unlimited gains in the event of an upswing in global prices, at the expense of the core sectors of the economy. “The government should also subject gas producers to closer regulation, especially on cost recovery and technical parameters related to production. A comprehensive technical study on cost estimates of gas production should be conducted for this purpose.”
Referring to the continued decline in production, the Committee says the government must ensure that the contractor responsible for delivering the major chunk of gas from KG D6 gasfield makes good the shortfall as per the agreement at the old price of $ 4.2 mbtu, rather than getting the benefit of the new price for previous commitments. “The important recommendation of the Rangarajan panel of moving to a revenue sharing arrangement with gas producers should be considered. A new production sharing contract [PSC] model should be evolved that will do away with incentives to control production and manipulating investments, while assuring reasonable returns to the producers,” says the Committee.
The draft report calls for a thorough study on the impact of gas pricing on different sectors of the economy, particularly the core sectors — power and fertilizer. The quantum of subsidy required to compensate these sectors should be precisely arrived at over the medium term. “Similarly, the revenue loss should be quantified over this period to grasp fully the implications of the price revision on the Union budget,” the report states.
The Committee states that as gas pricing will have implications for power tariffs as well, States should also be consulted. Instead of hurrying with the decisions having wider ramifications for the country as a whole, a broader consultative process involving all stakeholders should be put in place. “The valid concerns expressed by key economic Ministries of the government like Power, Fertilizer and Steel should be duly addressed before finalising the policy.”
