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Parliamentary panel seeks review of Rangarajan formula

19 Dec 2013 Evaluate

A Parliamentary panel headed by Andhra Pradesh MP Aruna Kumar Vundavalli has sought a review of the Rangarajan formula that will be used to price natural gas from April next year, saying the rate should be fixed after factoring in domestic cost of production. The committee, in a report tabled in Parliament, said the proposed formula is a simple average of two methodologies ie; price of imports of LNG into India by different suppliers and weighted average of prices of natural gas prevailing at Henry Hub in USA, National Balancing Point (NBP) in London and netback import price at the well head of suppliers into Japan.

However, the panel observed that the benefit of lower gas price at Henry Hub has been largely diluted by the inclusion of Japan's liquefied natural gas prices. The panel also pointed that a note prepared by Ministry of Finance argues that there is no logic in inclusion of the consumption by Japan which is having very high import LNG price and that nowhere in the world, well head prices of natural gas has been linked to spot LNG contract basis. The committee also pointed at omission of domestic cost of production of natural gas which ranges from $2.48 to $3.63 for private and public sector firms, in the formula.

The Rangarjan pricing formula will be effective 1 April, 2014, for a period of five years, with the price being revised quarterly, while the prices for each quarter will be calculated based on the 12-month trailing average price with a lag of one quarter.

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