House panel flays govt move to hike natural gas price

Questions the need for a dollar-denominated gas pricing formula

The Cabinet approval for the new gas pricing formula has been rapped by a Parliamentary committee which has instead asked for capping the price payable to producer companies like RIL,ONGC and GSPC. The committee report,however,has four dissent notes from four MPs,two from the Samajwadi Party and one each from the Congress and NCP who have supported the government position on the pricing formula.

The report of the 14 member standing committee on finance comes just a few weeks after the Cabinet Committee on Economic Affairs has cleared a formula on which to base the price of natural gas from April 1,2014. The governments decision in June this year is based on the pricing pattern suggested by C Rangarajan,the chairman of the Prime Ministers Economic Advisory Council. The formula suggested would yield the price with a three-month lag,using a moving average of domestic and global market prices over the preceding twelve months.

But the standing committee,chaired by senior BJP leader Yashwant Sinha,has noted that this pricing has been made in a hurry and will push Indian gas prices higher than they ought to be. The panel has asked the government to re-think the pricing formula and involve state governments too. Its observations are,however,not binding on the government. The panel has said the new prices will raise subsidies,has questioned the need for a dollar-denominated gas pricing formula and said the cumulative impact will push gas- based power and fertiliser plants to shift to less cleaner fuels thereby stultifying the gas pricing itself.

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It has also claimed that contrary to government arguments,raising domestic gas price by almost 300 per cent since 2005 ($1.79 mmBTu to $4.20) private investments in the sector and the countrys gas output actually dropped. The committee has asked the Centre to ensure that RIL,as the contractor responsible for delivering gas from the KG-D6 gas fields,should make good the shortfall it owes at the price of $4.2 per mmbtu,rather than benefiting from the new price. The committee said the government has to forgo huge revenue due to decline in gas production and cited the finance ministry as saying that in 2010-11 the revenue forgone was Rs 3,626 crore,in 2011-12 Rs 7,999 crore and 2012-13 it was Rs 8,817 crore. The extent of revenue loss or forgone should be quantified to grasp fully the implications of the price revision in the Union Budget, the committee has argued.

The committee has also said the government must meet the serious challenges arising from the tendency of the contractors to manipulate investment multiple parameters,which adversely affects fuel supply. Instead it has argued that natural gas is a public asset and any discourse on its pricing policy should reflect this principle for the larger national good and reject profiteering.

Raising red flag

* The report comes just a few weeks after the CCEA cleared a formula on which to base price of natural gas from April 1,2014

* The decision taken was

based on the pricing pattern suggested by PMEAC chairman

C Rangarajan

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