Govt constitutes panel to finalise gas pricing norms

NEW DELHI: The government has constituted a group of ministers headed by Planning Commission deputy chairman KC Pant to finalise the policy for fixation of natural gas prices.
The committee will include petroleum minister Ram Naik, commerce and disinvestment minister Arun Shourie, chemicals and fertiliser minister Sukhdev Singh Dhindsa and power minister Anant Geete.
Prices of natural gas produced by state-run companies are currently administered by the government and are lower than 50% of the import-parity price.
Officials point out that the objective would be to work out a comprehensive gas price policy which will integrate and take into consideration prices of comparative fuels like naphtha, LNG and fuel oil.
The current natural price which is kept at this artificially low level works out to less than 50% of fuel oil, and 25% of naphtha prices.
Significantly, the LNG cost is more than thrice the present subsidised gas price. Although it may be difficult to sell LNG on competitive prices vis-à-vis natural gas produced domestically, it could turn out to be a cheaper option than naphtha, which has a large industrial use.
According to the policy in vogue, this sector has a ceiling price which restricts the upward movement in gas prices beyond Rs 2,850 per MCM. The policy had also fixed a floor price of Rs 2,150 per MCM.
It had been proposed that gas prices would be gradually moved to the import parity level by increasing prices in a phased manner. Gas prices have been linked to a basket of fuels to provide a balance and reduce volatility.
However, despite the policy, the government continued to maintain the ceiling prices which was much lower than the committed level of linkage in a given year.
As a result, today, when prices are supposed to be at least 70% of the indexed price, domestic gas prices are below 50% of the indexed price.
This is primarily because of heavy lobbying by the power and fertiliser sector, the prime consumers of gas. The government had announced a policy to get the gas prices linked to 100% of fuel oil prices with a ceiling of Rs 5,800 per MCM.
But both the power and fertiliser sectors have expressed reservations about such a drastic hike in gas prices. An escalation in gas prices would hike power tariffs and warrant higher subsidies or higher fertiliser prices.