Cabinet approves doubling domestic gas price from 2014

New Delhi, June 27 (IANS) The Cabinet Committee on Economic Affairs (CCEA) Thursday approved doubling the price of domestically produced natural gas - to $8.42 per million British thermal units (MBTU) from April 2014 against the current $4.2 MBTU - under a complex formula recommended by the C. Rangarajan Committee, an official source said here.

The CCEA approved the Rangarajan formula for a period of five years, while the pricing will come into effect from April 1, 2014.

The price of gas when the guidelines come into effect would be around $8.42 per MBTU against the current $4.2 MBTU.

The government contracted price for gas from Reliance Industries' KG-D6 gas fields is $4.2 per MBTU, which is valid till April 2014.

While RIL's KG-D6 gas price was fixed in 2007 for the first five years of production, administered price mechanism (APM) gas rates were last revised in June, 2010 when prices were raised to $4.2 from $1.79.

APM gas constitutes about 60 percent of current domestic production of about 110 million standard cubic metres per day. RIL production has tapered off to 15 mmscmd.

The Rangarajan formula is based on averaging prices at the international gas hub as well as of imported LNG.

While the Rangarajan panel had recommended revising domestic gas prices every month, the petroleum ministry has proposed a quarterly revision.

According to sources, both the power and fertiliser ministries have opposed any hike. The power ministry maintains that electricity generated at any price of over $5 was economically unviable. It has also questioned the logic of pricing the fuel in US dollars as any depreciation in the Indian currency would further add to costs.

The cost of generating electricity would be around Rs.5.4 per unit at new gas price, taking the total cost of generation to Rs.6.40 per unit. This compares to current cost of Rs.2.93 per unit.

In the face of criticism, particularly from the Left parties, Petroleum Minister M. Veerappa Moily has pitched for a gas price hike saying it was essential to incentivise exploration to raise domestic production and cut imports.

The new price will be uniformly applicable uniformly to all producers - both state-run and private.

--Indo-Asian news Service

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