CCEA approves Rangarajan formula for natural gas price hike; formula to be valid for five years. Gas prices to rise to USD 8.4 per MMBtu from April 1, 2014; to be revised every three months. The Oil Ministry's proposal to price all domestically produced natural gas as per a complex international hub and imported LNG-based formula suggested by the Rangarajan panel was listed as item number 8 on the agenda of Cabinet Committee on Economic Affairs (CCEA) meeting.
It wants gas prices to be revised every quarter till 2017 when rates will be completely freed, sources said.
Sources said power and fertiliser ministries have strongly opposed the move as it would result in cost of electricity generation rising to unviable levels and steep jump in urea subsidy.
Also, Left parties have alleged that Oil Minister M Veerappa Moily is trying to help Mukesh Ambani's Reliance Industries (RIL) by proposing a price hike.
Sources said even in 2007 when USD 4.205 per mmBtu was fixed as the price of gas that RIL had planned to produce from KG-D6, the government had exercised its discretion to modify the formula suggested by the private firm and imposed a cap.
The price was at that time lowered from USD 4.34 sought by RIL and capped at USD 4.2 for the first five years of production.
Power Ministry has opposed any hike saying electricity generation at any price of over USD 5 was economically unviable. Also, it has questioned the need to price the fuel in US dollars as any depreciation in the Indian currency would further add to the strain on the consumers.
Sources said the variable cost of generating electricity at the 2014 gas prices would be around Rs 5.40 per kilowatt hour (per unit), taking the total cost of generation to around Rs 6.40 per unit. This compares to current cost of Rs 2.93 a unit.
With the cost of every dollar increase in gas price assuming that the delivered price increases to USD 1.3 per mmBtu, the impact on power sector will be about Rs 6,450 crore, the note states. At 2014 gas price, the impact would be Rs 46,360 crore per annum.
The Fertiliser Ministry had shot off a letter to the Oil Ministry saying it had never supported an increase in gas price as was being brought out in the note Oil Ministry moved for consideration of the CCEA.
The hike in natural gas price by USD 1 would result in Rs 3,155 crore per annum hit on fertiliser plants for producing 23 million tonnes of urea this fiscal and Rs 4,144 crore a year for 32 million tonnes of urea production from 2017-18, sources added.
Moily says a gas price hike was essential to incentivise exploration so that domestic production is raised and imports cut.
Source- Indian Express