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Govt postpones decision on natural gas pricing by 3 months

26 Jun 2014 Evaluate

In a setback to gas producers, the government has postponed revision in natural gas prices by three months to September end. Highlighting the need for comprehensive discussions to make a controversial Rangarajan formula more palatable, the Cabinet Committee on Economic Affairs (CCEA) has stated that it will organize consultations with all stakeholders and keep public interest in mind.

Further, the government also doesn’t want to add to already high inflation, which may accelerate due to a below-normal monsoon and a spike in oil prices in the aftermath of the Iraq crisis. If the Rangarajan formula is implemented without changes, power tariff will rise by about Rs 2 per unit and CNG rates will jump by over Rs 12 per kg in national capital Delhi. Earlier, the government had decided to implement Rangarajan formula from April 1 but with general elections being declared it was postponed by three months to July 1.

In June 2013, the government had approved the formula under which all domestically produced gas will be priced at an average of the price prevailing at international gas trading hubs and the actual cost of importing liquid gas (LNG). Under the new approved pricing formula, the gas prices will get doubled at $8.8 per million British thermal unit from the current price at $ 4.20 per mbtu and put excessive burden on consumers. Natural gas pricing formula was planned to implement for a period of five years. As per this formula, gas prices will be revised on the quarterly basis and price for each quarter will be calculated based on the 12-month trailing average price with a lag of one quarter.

The new price will be uniformly applicable to all public and private sector producers such as Reliance Industries and ONGC. The increase in gas prices will directly benefit these local producers. Further, the move to raise gas prices is expected to benefit the government by around $2.2 billion incremental revenue by way of higher taxes.

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