GOVT WANTS TO HIKE GAS PRICE, HELP RIL; MINISTRIES RESIST
Thursday, 30 May 2013 | J Gopikrishnan | New Delhi
As the countdown has started for the end of the UPA Government, a move is underway to sharply increase the price of indigenously produced natural gas. A Cabinet note shows that a section of the Government wants to bring the domestic price on a par with international rates. The move, which would come as windfall for Mukesh Ambani’s Reliance Industries Limited (RIL), has triggered sharp differences among various Ministries.
According to the note prepared by the Petroleum Ministry for consideration of the Cabinet Committee on Economic Affairs (CCEA), while Fertilizer and Power Ministries are opposed to any price hike, the Finance and Petroleum Ministries and Planning Commission are advocating for the steep hike in price of the gas. The rates suggested by these Ministries and Planning Commission varies between $4.14 per mmbtu (Million Metric British Thermal Units) and $14 per mmbtu.
The note released by CPI veteran leader Gurudas Dasgupta last week to the media clearly shows that Fertiliser and Power Ministry are opposing the hike citing national interest and fearing huge loss to exchequer.
Fertilizer and Power sector are the major consumers of natural gas. According to Dasgupta, the rate suggested by Finance, Petroleum and Planning Commission reflects the wishes of Mukesh Ambani’s RIL, which will be major beneficiary of the largesse. At present the Government is purchasing gas at the rate of $4.2 per mmbtu. This rate was fixed by an Empowered Group of Ministers (eGoM) few years back.
In a series of letters to Prime Minister Manmohan Singh, CPI(M) leader and member of the Standing Committee on Petroleum and Natural Gas Tapan Sen has pointed out that the current price of $4.2 per mmbtu itself is a bonanza to the RIL. In his letters, Sen pointed out that the RIL quoted $2.4 per mmbtu for supply of gas to NTPC in an international competitive bid.
The current controversy started after the Rangarajan Committee recommended a high rate of $8.2 per mmbtu for the purchases of domestically produced gas from April 2014, with provisions of specific increases in each stage in the coming five years. The committee’s report was submitted in December 2012. In India, the major gas producers are public sector undertakings ONGC and Oil India with around 60 per cent of total output, and the major private player is RIL, which started controlling the sector after its production started from KG Basin. According to the estimates of Petroleum Ministry, by 2016-17 the private players will control more than 50 per cent of the domestic gas production in India.
The Fertilizer and Power sectors will be hit hard in case of increase in the price of the gas from current level of $4.2 per mmbtu. Petroleum Minister Veerappa Moily’s arguments that the increase in price of gas would earn more revenue to the public exchequer were totally untenable as the Government had to shell out huge subsidies in Fertilizer and Power sector.
Moily’s arguments that ONGC and OIL India would benefit more did not take into account the fact after gas price hike, the Government would be required to pay huge subsidies in different sectors, which consume gas.The ultimate beneficiary would be the private gas producing contractors, who wants to get money in dollars for a domestic production.
Objecting the recommendations of the Rangarajan Committee, Fertilizer Ministry headed by Srikant Jena has suggested “weighted average” method for fixing the price of the gas. The method could reduce the price by at least $2 per mmbtu. The Ministry has questioned the rationale behind calculating domestic production in dollar terms insisted for Rupee-based calculations. According to the Fertilizer Ministry, if the Rangarajan Committee report advocating $8 per mmbtu is accepted, the sector would require additional subsidy of Rs 17,000 crore per year.
The Power Ministry headed by Jyotiraditya Scindia has said that the Rangarajan Committee did not consult them in formulating the price of the gas. In the note, circulated before the CCEA, the Ministry warned of heavy financial casualties in the power sector if the current price of gas was increased. The Ministry estimated that if the Rangarajan Committee recommendation was approved, the cost of generation of power would be Rs 6.40 per unit. This would be totally unviable in the power sector and would lead to spiraling effect in overall economy, the note said.
But Finance Ministry headed by P Chidambaram suggested that the domestic gas price could be brought on a par with the international price of Qatar. The price under this curious formula, for domestic production, will go up to $10 per mmbtu in 2014-15 financial year, and around $11 in the following year.
The Planning Commission, headed by Montek Singh Ahluwalia, went a step further by stressing the need of parity in price on other international export rates for domestic production of gas. Recommending international pricing formula, on the line of what was suggested by the RIL, the Planning Commission said the contractor/producer would be allotted 10 per cent of the gas produced to sell at market rates. It also said the share would be increased 15 and 20 per cent in next years. The Plan panel advocates a price $10.80 per mmbtu.
The Petroleum Ministry headed by Moily, facing charges of favouring RIL, has suggested rate of $8 in the first year, $10 in second year, $12 in third year and $14 in last two years.
According to Left leaders, Moily’s suggestions would lead to a subsidy burden of Rs.1,80,000 crore to the Government and additional profit of Rs.1,62,000 crores to Mukesh Ambani’s Reliance Industries. Is the UPA Government ignoring the interest of the nation over corporate interests?http://www.dailypioneer.com/todays-newspaper/govt-wants-to-hike-gas-price-help-ril-ministries-resist.html