A day after it approved an increase in the price of natural gas from April next year,the government Friday sought to assure consumers that power tariffs and fertiliser prices need not rise equally.
Finance Minister P Chidambaram said that there was a genuine concern that the cost of power and fertilisers from gas-based plants would go up when the new gas price becomes effective. But not raising the price would have forced the country to import gas at even higher prices,he said.
Power has to be produced at an affordable price,fertiliser has to be produced at affordable prices. Those issues will be addressed, Chidambaram told reporters.
The minister was responding to claims by power and fertiliser companies as well as the power ministry that the higher gas price would have a cascading effect on them. Chidambaram said one of the options could be to subsidise these companies or tweaking their prices to address concerns of consumers.
His comments tempered the brisk rise in share prices of domestic oil producers at the BSE towards the end of trade. Shares of RIL were up 3.78 per cent at Rs 861.85 while ONGC rose by 2.98 per cent to Rs 330.10.
The position articulated by Chidambaram could be tricky as the government has little space to offer more subsidy when it is fighting to control fiscal deficit. But at the same time the offer to raise gas price after approving an increase in coal prices last week could become a sensitive political issue in the elections due next year as it translates into potentially higher power tariffs and more expensive fertilisers.
The Union cabinet Thursday set a quarterly formula for deciding gas price from domestic producers such as RIL and ONGC with effect from April 1,2014. On current estimates the price will be above $8 per mBtu.
The finance minister said the price of gas had to be raised from the current $4.2 per mBtu as investments were not being made at this price. If there is no investment there will be no gas which means we will have to import at even higher prices, he explained.
Platts,a global price tracker for gas,has reported that liquefied natural gas for July delivery to Asia is currently ruling at $14.485 per mBtu.
India is trying to become self sufficient in its energy needs and one of the key elements of that strategy is to double the proportion of gas in its energy mix by 2020 from 10 percent at present. Coal accounts for nearly 56 percent of its energy needs,while oil accounts for 26 percent.