Plan panel told to set up body for working out uniform gas price

NEW DELHI: India's apex planning body will set up an inter-ministerial committee to suggest a mechanism to have a uniform price for all consumers of natural gas after it rejected an independent recommendation to have different rates for power and fertiliser sectors. Currently, gas prices vary sharply depending on the source of the fuel and location of the buyer, severely distorting the market in the country.

“The government has asked the Planning Commission to appoint a high-level committee,” oil secretary S Sundareshan said at a conference on city gas organised by Ficci. The oil ministry is considering a gas pooling mechanism that will facilitate approximately uniform rates for all consumers while ensuring that gas producers get a fair price.
A model for pooled pricing of gas is expected in one year, he added.

The government has asked the plan panel to constitute a committee with representation of power and fertiliser ministries after the Planning Commission rejected Mercados Energy Markets International’s model to have different fuel prices for fertiliser and power sector.

The proposed committee will also have representations from Gail India, Petronet LNG, Oil & Natural Gas Corp and downstream regulator Petroleum & Natural Gas Regulatory Board.

Earlier, at the behest of the petroleum ministry, Gail India had appointed the Spanish energy consultant, Mercados Energy, who suggested differential prices for two major gas consuming sectors to avoid cross subsidies. ET had reported on October 4 that the Planning Commission wanted to have uniform price for both power and fertiliser units and leave others to pay market prices for domestic and imported gas.

“Fertiliser and power units should pay a single price for the fuel and their full demand should be met by domestically produced gas,” a senior Planning Commission official said. “Mercados’ argument is not valid. There is no cross subsidy (between power and fertiliser consumers),” the official said.

Power and fertiliser sector account for more than 60% of country’s total natural gas demand. While power tariffs are either fixed or move within a price band, the government provides subsidies to fertiliser plants to control its price. “Domestic gas must meet the power and fertiliser sectors’ demand as it has direct bearing on the exchequer,” he said adding that others should use imported fuel (such as liquefied natural gas or LNG) and pay market rates.

Natural gas consumers pay different prices for the fuel varying between $4.20 mBtu (million standard British thermal unit) for domestic gas and $8-10 per unit for imported LNG. At times spot price of LNG goes as high as $12 a unit.