Gas-price policy: Why are power, fertiliser cos against it?

Moneycontrol Bureau

Power and fertilisers, the two key natural gas consuming sectors have vehemently opposed Rangarajan committee's formula and recommendations on increase in gas prices.

While fertlisers sector is supportive of gas price hike up to USD 2- USD 3 per mmbtu (million metric British Thermal units), power sector is willing to pay up to USD 5. The Rangarajan committee's formula has suggested putting natural gas prices in India at around USD 8 per mmbtu.

Natural gas prices in India currently range between USD 4.2 to USD 5.6 per mmbtu, while imported natural gas costs around USD 14- USD 15 per mmbtu.

So far fertisers sector have enjoyed the priority status for supply of gas the government is now also considering to give power sector also priority sector status for supply of gas. An empowered group of ministers are likely to soon meet for taking decisions on gas allocation and gas pricing.

Latha Venkatesh of CNBC-TV18 discusses the key issues of gas price increase with Satish Chander, DG of Fertiliser Association of India (FAI), Ashok Kumar Khurana, Director General of Association of Power Producers (APP) and RS Sharma, Former Chairman, Oil and Natural Gas Corporation ( ONGC ).

Increase in gas prices will impact subsidy of government who has been struggling to rein in fiscal deficit. "If the gas price increases by (recommendation of) Rangarajan Committee, the prices will almost double. So that will impact the subsidy bill of the government of India," Chander said.

Fertilisers Association had also suggested the government an alternative formula for fixing gas prices, where 50 percent of the gas price can be based upon the cost of production in the country and 50 percent can be through some other index of the imported LNG.

According to power sectors increase in gas prices beyond USD 5 would result in high per unit power cost which may not find any takers in the current lean period. Khurana, Director General of APP said that every dollar increase in the gas prices would increase the variable of energy cost of power by another 50 paisa. He believes that pricing formula designed by Rangarajan Committee has taken a very narrow basket and a slightly wider approach would help to arrive at USD 6 per mmbtu gas price.

But more importantly he said, "Problem is government wants to increase the prices of the input industry. But on that basis of prices you have the output price increase. There it is completely regulated on that side, so equation never matches."

The Kelkar Committee is studying the suggestions Rangarajan committee's recommendation and is likely to come back with a new formula.