India Inc. applauds gas price hike

New Delhi, June 28 (IANS) India Inc Friday came out in support of the government's decision to hike the price of domestic natural gas.

"The rise in gas price will not only encourage the upstream companies to invest in exploring more challenging frontiers to augment gas production for the country, but a good amount of this increased price will flow back to the government in terms of royalty and dividend which could be invested in various development programs," said Sudhir Vasudeva, chairman of ONGC and the Confederation Indian Industry's national committee on hydrocarbons.

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 panel led by the Prime Minister's Economic Adisory Council chairman, C. Rangarajan.

"It (approval of the Rangarajan Committee's formula) is also directionally a step towards achieving market determined pricing as suggested by the minister, which will encourage the development of a competitive gas market in the country," said Sashi Mukundan, co-chairman, CII National Committee on Hydrocarbons.

The complex Rangarajan formula is based on averaging the prices of Indian LNG term imports and the pricing prevailing at the hubs or balancing points of the major international markets.

In the face of criticism, particularly from the Left parties that raising prices was designed to benefit Reliance Industries Ltd. (RIL), 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 government-contracted price for gas from Reliance Industries' KG-D6 gas fields in the eastren offshore is $4.2 per MBTU, which is valid till April 2014.

Describing the measure as a "bold policy initiative" Federation of Indian Chambers of Commerce and Industry (FICCI) president Naina Lal Kidwai said: "The revision in natural gas price will bring in the much required technology and risk capital from foreign majors to tap vast unexplored resources in the deep and ultra deep water frontier basins. This also has the potential to usher in the much needed Gas Revolution in India with an increased share in our energy basket in line with that of developing countries."

Commenting on the criticism that increase in gas prices will lead to a hike in power tariffs and increased fertilizer costs, Kidwai said: "Huge dependence on imported LNG (liquefied natural gas) is an expensive proposition, as it is imported at $13-14 mmbtu and sold domestically at the current rate of $4.2 mmbtu".

"Furthermore, lower domestic natural prices encourage Indian companies to invest in overseas E&P (exploration and production) activities and develop their economies, create employment overseas, and then import LNG to India at market-determined prices. By doing this, government not only depletes the forex reserves but also loses out on the royalties and taxes etc. which it would get from domestic E&P," the statement added.

Industry chamber Assocham said that higher gas price will enhance domestic production and bring in foreign technology that is much needed for India's deep sea exploration.

"It will usher in coal sector reforms due to competitive pressures and increased availability of natural gas," said the FICCI president.

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