Gas price hiked, consumers to be cushioned

NEW DELHI: The Narendra Modi government on Saturday chose the oil sector to launch big-ticket economic reforms by raising the price of gas from domestic fields to $5.6 per unit, or roughly 33%, from $4.2 at present.
Announcing the decision taken by the Cabinet Committee on Economic Affairs, finance minister Arun Jaitley said the new price would come into effect from November 1.Oil minister Dharmendra Pradhan added the new price would be revised every six months with a view to ensuring "stability in the market".
ToI had on June 24 first reported that the government was looking at a price of $5.5-6.8 per unit. The existing price of $4.2 per unit is based on the net calorific value of gas. This is the actual usable heating value after removing impurities. The new price, sources said, has been set on the basis of gross calorific value, which includes the impurities. There is a difference of about 10% between the two. So calculated on the basis of NCV, the new price would actually come to about $6.17 per unit.
Either ways, it is still lower than the price of $8.4 per unit that was estimated as per the formula suggested by a panel under C Rangarajan and approved by the UPA-2 government.
The new price brings a finality to the issue and would improve investor sentiment by removing policy uncertainty. It also highlights government's commitment in pushing ahead with tough decisions and would give a fillip to the next round of oil/gas block auction.
But higher gas price would raise costs of CNG, PNG for suppliers and push up cost of power from gas-fired plants. It would also raise the fertiliser subsidy but the increased income for the government from higher gas price is expected to offset the additional burden.
But the Pradhan assured that consumers would be cushioned. In Delhi, for example, the impact on CNG would be about Rs 4.25 per kg and PNG Rs 2.60. "PM had expressed concern during discussion over any major impact on the aam aadmi. Companies (Indraprastha Gas Ltd in Delhi) would now calculate how much they can absorb, GAIL would see where transportation tariff can be reduced and states would be asked to reduce taxes," Pradhan said.
The cost of gas-fired power would go up by 45 paise per unit but the overall impact would be negligible since such plants account for only 7% of generation capacity. Every dollar increase in gas price will lead to a Rs 1,370 per tonne rise in urea production cost.
The gas pricing issue had triggered a political storm during the Lok Sabha polls, with Left's Gurudas Dasgupta and Aam Aadmi Party chief Arvind Kejriwal alleging that the UPA-2 government was favouring Reliance Industries Ltd by accepting the Rangarajan formula.
Under the latest decision, Reliance would not get the new price for gas from its two producing fields - D1 and D3 - in the KG-D6 block till the outcome of the international arbitration on pricing launched by the company.
Pradhan said industries that get gas from Reliance would pay the new price but the difference would be deposited into the gas pool account operated by state-run gas utility GAIL till the outcome of the arbitration.
The new price falls short of expectations of state-run companies such as ONGC and Gujarat State Petroleum Corporation. ONGC had in September sought an average price of $8 per unit to make production from its new discoveries commercially viable. GSPC had sought a price linked to LNG, which costs nearly three times the current price.