The government has approved raising natural gas price to $5.61 per mmBtu. The new gas price will be implemented from November 1 and will be revised every six months with the next revision being on April 1. However, Reliance Industries will continue to get current $4.2 per mmBtu rate till it makes up for shortfall in output from KG-D6 block.
RIL will get the higher rates if it is legally able to prove that output fall was a result of geological reasons as it claims and it did not deliberately cut production. As per the RIL agreement with government, natural gas output from D1&D3 gas fields in KG-D6 block should be 80 mmscmd, but it is languishing at less than 8 mmscmd.
The Cabinet modified the Rangarajan formula approved by previous UPA government to bring down the increase in rates from $8.4 to $5.61 per mmBtu. Gas price increase had been deferred on three occasions previously. Higher gas prices would increase inflation in the country by rising operating cost of fertilizer plants, running power stations and prices of food.
Every dollar increase in gas price will lead to Rs 1,370 per tonne rise in urea production cost and 45 paise per unit increase in electricity tariff. However, there is only 7 percent of the nation’s power generation capacity based on gas. Furthermore, there would be a minimum Rs 1.89 per standard cubic metre hike in piped cooking gas and Rs 2.81 per kg increase in CNG price.
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