PMO nudges oil ministry to ask for relook of gas price

Cabinet acts on ministry note, defers revision by three months.

Written by Amitav Ranjan | New Delhi | Updated: June 26, 2014 10:14:24 am
Prime reason for deferring the revision in gas prices was the legal and political tangle associated with the formula approved by the UPA. (Reuters) Prime reason for deferring the revision in gas prices was the legal and political tangle associated with the formula approved by the UPA. (Reuters)

On instructions from the Prime Minister’s Office, the petroleum ministry on Wednesday submitted a proposal seeking a fresh examination of the previous government’s decision to revise natural gas prices. The proposal was approved by the Cabinet Committee on Economic Affairs (CCEA). “Since the new government has been formed recently, it (UPA government approval) may be comprehensively re-examined before a decision is taken,” said the CCEA note which was dashed off to the Cabinet Secretariat Wednesday afternoon. The issue was not listed for the day’s CCEA meeting. UPA, last December, approved a new formula for pricing all domestic gas from April 1 but stopped from announcing it due to the Model Code of Conduct during the general elections. Subsequently, the ministry informed Reliance Industries, one of the price beneficiaries, that the new rate will be effective from July 1. The prime reason given in the CCEA note for deferring the revision in gas prices by three months and using the interregnum to review it afresh was the legal and political tangle associated with the formula that was approved by the UPA. “It has been a contentious issue with two public interest litigations pending in the Supreme Court and adverse comments from the Standing Committee,” said the note.While the PILs accuse the UPA regime of colluding with RIL and hiking the price of gas to provide it windfall gains, the Parliamentary Standing Committee on Finance headed by BJP leader Yashwant Sinha had suggested that there was a case for revisiting the pricing formula. The other reason cited in the CCEAnote for delaying the price revision, which would have nearly doubled the producer price from current $4.2 per mBtu, was the adverse impact on consumers as it would have raised the price of fertiliser, electricity, piped gas used for domestic cooking and compressed natural gas used by buses and taxis as fuel. Every dollar increase in gas price would lead to a Rs 1,370 per tonne rise in urea production cost and a 45 paise per unit increase in electricity tariff. There would be a minimum Rs 2.81 per kg increase in CNG price and a Rs 1.89 per standard cubic metre hike in piped cooking gas. And if these hardships were to be ameliorated, the CCEA note said, the government would be required to pay out huge subsidy in the forthcoming budget. The concern for the public was reflected in petroleum minister Dharmendra Pradhan’s statement while announcing that the current price would continue until end-September. “CCEA decided that comprehensive discussions were necessary on the issue. It was decided that consultations would be held with all stakeholders and it was important to keep public interest in mind.” The ministry will now send a new communication in light of the CCEA decision as under article 33.3 of the Production Sharing Contract with RIL, the deferment of domestic natural gas price “cannot be a dispute which could be arbitrated by a tribunal”. RIL and its partner BP have slapped an arbitration notice on the government over delay in revision of gas prices which for their KG-D6 field was due on April 1 after the five-year validity of the old $4.2 per mBtu rate expired on March 31.

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