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FAI opposes Rangarajan panel suggestions on natural gas pricing

13 Feb 2013 Evaluate

Opposing the recommendations of the Rangarajan Panel on production sharing contract, fertiliser makers have pitched for the continuance of the existing domestic gas pricing mechanism. The Fertiliser Association of India (FAI) has said the existing formula for calculating the price of gas from the Reliance Industries operated KG-D6 block may be followed as it was suggested by the gas producers, approved by the Government and accepted by the consumers like the fertiliser makers.

The existing formula is linked to the crude oil price and requires a ceiling of $60 per barrel on the crude price. Further, FAI said that the ceiling may be removed and allowed to float with monthly price of Brent crude.

Meanwhile, the government is expected to approve new policy guidelines for the pricing of natural gas based on the Rangarajan committee report. If approved it would more-than-double the price of domestic gas sold by the state owned oil companies along with this it would also raise costs for power and fertiliser companies and other natural gas buyers such as city gas distributors.

The Rangarajan committee, recommended pricing of domestically produced natural gas at an average of international hub prices and cost of imported LNG instead of present mechanism of market discovery. Further, the Rangarajan formula is the mean of weighted averages of the producer price of liquefied natural gas imports to India and the price prevalent in Europe, the US and Japan.

Moreover, the Rangarajan formula is applicable to all natural gas producers, including government companies for nominated fields and private companies. The new price would be uniformly applicable to all consumers.

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