P Chidambaram hints at subsidised gas rates for power, fertiliser units

NEW DELHI: A day after deciding to nearly double natural gas prices to $8, Finance Minister P Chidambaram today hinted that power and fertiliser units may get gas at subsidised rates to keep electricity and urea costs down.


Stoutly defending the move to raise price from current $4.2 per million British thermal unit, Chidambaram said investment in domestic oil and gas hunt had dramatically fallen in absence of remunerative prices, resulting in sharp dip in production that was being made up through costlier imports.

After deliberating on the proposal for over one-and-half hours, the Cabinet Committee on Economic Affairs (CCEA) last evening approved pricing of all domestically produced natural gas at an average of the cost of imported liquid gas (LNG) on long-term contract and international gas benchmarks.

The pricing according to the formula, which was suggested by a panel headed by Prime Minister's economic advisor C Rangarajan, will be applicable to all domestic gas from April 1, 2014. Gas rates will change every quarter based on average imported cost and international hub rates and this formula would be valid for five years.

The increase in gas price was opposed by user ministries of power and fertiliser as it would lead to cost of generating electricity spiking to Rs 6.40 per unit from Rs 2.93 and nearly Rs 9,000 crore per annum rise in cost of urea output.

"At the moment we are fixing only output prices (rates payable to gas producers). This will indeed have impact on the consumer, but those prices are not being fixed today," the Finance Minister said adding that the price power and fertiliser companies will pay for gas are not being fixed now.

"What is the price at which it should be supplied to a power plant, to a fertiliser plant in order to make power affordable, fertiliser affordable... that can still be decided between now and April 1," he said.

Stating that the government was conscious of keeping power and fertiliser prices low, he said, "It could be tweaking prices or it could be bearing additional subsidy. There are various methods but at the moment we are not addressing those issues."