Election Commission asks Oil Ministry to defer new gas price till poll ends

NEW DELHI: The Election Commission ordered deferment of an increase in gas prices that was to take effect from April 1, saying that the decision should be left to the government that's formed after the general election, with the Aam Aadmi Party’s Arvind Kejriwal taking credit for the move. The decision will put consumers and producers such as Reliance Industries and ONGC in a quandary because the hike has been stalled after the oil ministry’s notification that the new rates would apply from the start of next month.

ET NOW cited Oil Minister Veerappa Moily as saying that the commission had taken a decision after a review of the proposal. Moily said he had done his duty as oil minister to the best of his ability and that the gas price revision was aimed at boosting exploration and production activity and making the sector more attractive to foreign investors.

According to government officials, the commission also asked the oil secretary to put off the price increase because the matter is sub judice as there's a case related to it in the Supreme Court, which is scheduled to hear the matter from Tuesday. Kejriwal said his party was the only one that had raised the issue with the poll watchdog. “It's a victory for the people,” he said on Monday.


“No other party other than AAP had raised the issue... BJP and its allies had not raised the issue because we know from reliable sources that GSPC (Gujarat State Petroleum Corp.), which is under Gujarat government, had wanted UPA to raise gas prices... Now people have to decide... if Congress comes to power, gas prices will be $8 per unit, if BJP comes to power, they will be $6 per unit, but if AAP comes to power, prices will be $3-4 per unit.”

The price was supposed to be raised to $8.4 per million British thermal unit (mBtu) from $4.2, as per a Cabinet decision and based on a formula arrived at by the Rangarajan committee. “EC is the supreme authority during elections and we all must abide by its orders,” said a Cabinet minister who didn’t want to be named. “The gas price decision was an old decision, taken by the Cabinet in June last year and the oil ministry had notified the new pricing formula in January this year.”

At least two members of the Congress party said the decision would be a blessing in disguise as it will help to blunt attacks on the United Progressive Alliance (UPA) from opponents such as AAP over the issue. Senior executives of state-run Oil & Natural Gas Corp. (ONGC) and Reliance Industries Ltd ( RIL) said the move was regressive for the industry. Their spokespersons did not respond further to ET’s queries.

RIL had said on Sunday that EC should be kept away from the “politics of disinformation”. A day after Kejriwal’s letter to the commission asking it to stop the raising of prices, Chief Election Commission VS Sampath had hinted that the move, which has become a key poll issue, could be left to the new government. Referring to Kejriwal’s letter to the commission, RIL spokesperson Umesh Upadhyay had said, “A political party has written to the Election Commission (EC) to keep on hold a bonafide decision of the Union Cabinet on gas pricing,” and commented that “the party has a history of ill-informed diatribe”.

He said the gas pricing decision was not new and that contracts and projects already awarded prior to the model code of conduct coming into force should be honoured. “The decision to implement the new price from April 1, 2014 is part of this contractual obligation,” he said. Sanjeev Prasad, executive director and co-head of Kotak Institutional Equities, said the move was unexpected. “It's unfortunate,” he said. “The decision to raise gas prices was taken by the Union Cabinet last year, so now this news is very surprising.”

The move will discourage overseas investors, said Deepak Mahurkar, director and leader, oil and gas industry, PwC India. “This decision is very inconsistent and puts a big question mark on the near-term profitability of the E&P businesses of Indian energy companies,” he said. “It also sends a wrong signal to the global investor community about the policy framework and its execution process in India, although it’s an opportunity to better the Rangarajan formula, which many in the industry believe is not the best way to price gas in India.”

This will lead to a decline in the RIL stock price, said Deven Choksi, MD, KR Choksi Securities. “RIL's stock will correct by 4-5 per cent after this, which will give investors a good buying opportunity as they are looking for stocks with depth,” he said. “On the policy front, it’s only a shortterm delay on the implementation front, as the policy will get implemented once the new government takes over.”

The RIL stock rose 1.83 per cent to Rs 904.6 on the BSE Monday. Jagannadham Thunuguntla, strategist and head of research, SMC Global Securities, said, “Not just RIL but even ONGC and Oil India will see selling pressure tomorrow, but in the long term, markets are mature enough to understand that it’s a minor delay and the future government will not find it easy to overturn this decision.” ONGC rose 4.27 per cent, while Oil India was up 0.6 per cent on Monday.

RIL has been rejecting AAP’s allegations, saying that gas fields aren’t commercially viable at current prices. It has denied that it’s producing gas at a cost of less than $1 and selling it for much more, adding that the biggest beneficiary of higher rates would be state-run ONGC as RIL accounts for just a small part of the country’s gas output. It has said the impact on power tariffs would not be high because gas-fired plants account for barely 5 per cent of the electricity generated in India. In a video on Friday, RIL said there was no correlation between inflation and gas prices.