Power and fertiliser could cost more after April 2014, with the Cabinet Committee on Economic Affairs (CCEA) today biting the bullet on gas pricing. It decided to almost double the price of domestically produced natural gas to $8/mmBtu from April 2014 from the current $4.2, official sources said.
This means industrial consumers will have to pay $1-2/mmBtu more for delivered gas; this excludes local transportation charges, marketing margins and other components. Retail consumers will be badly affected as they will have to pay more for electricity, compressed natural gas (CNG) used as auto fuel, and piped natural gas (PNG) for cooking.
Petroleum and Natural Gas Minister Veerappa Moily said the CCEA has approved the gas pricing formula recommended by the C. Rangarajan panel and it will applicable from April 1, 2014. The pricing is for all natural gas domestically produced, regardless of the source — conventional, shale, or coal bed methane (CBM) — and will be reviewed every quarter.
This decision comes despite resistance from key consumers, such as the Power Ministry, that were against any hike beyond $5/mmBtu, and stiff opposition from political parties, which alleged that the Government was helping a particular corporate house.
Consumers : With rupee devaluation, every dollar’s increase in gas price will mean a 45-50-paise hike per unit of electricity. While users of CNG as auto fuel will bear an average increase of Rs 1.60-1.70 a kg, those using PNG as cooking fuel will end up paying Rs 1.20-Rs 1.30 more for a standard cubic metre.
Input costs for GAIL (India) and other gas consumers in the petrochemical and LPG business will go up. The hike will also have a substantial impact on fertiliser subsidy.
Advantage Govt : The increase in gas price will raise Government revenues through royalty and profit petroleum to be paid by the producing companies. Such an increase will depend on actual production and the Government’s profit share.
Advantage Producers : The revenues of exploration and production contractors/operators will increase both in the public and private sectors. Such an increase will depend on the actual exploration and production costs, profit share, gas price, etc.
For Oil India, every dollar’s increase in gas price would add Rs 400 crore to its gross revenues and Rs 240 crore to its profit, while for ONGC, it would add Rs 3,600 crore to the topline and Rs 2,100-Rs 2,500 crore to net profit. But the public sector companies are quick to point out that these benefits will only accrue if all other factors, such as cess, royalty, subsidy, dividend payout, remain the same.
For Reliance Industries, the KG-D6 price of $4.2/mmBtu is valid till March 2014, and the new price becomes effective April 1, 2014. Every dollar’s increase in gas price impacts Reliance’s revenues by $100 million and profits by $74 million.
Proposal : Though the Petroleum Ministry has based its proposal on gas pricing as recommended by the C. Rangarajan Committee, it has deviated on the issue of price review. The Rangarajan panel had suggested that the price should be notified on a monthly basis, while the Ministry is for quarterly review of gas pricing.