Gas pricing dilemma: Will government bite the bullet?

All eyes are on the cabinet committee on economic affairs (CCEA) which meets on Thursday to decide on a new gas pricing regime starting next fiscal.
With almost every ministry at loggerheads with each other, the decision will be keenly watched reports CNBC-TV18’s Nayantara Rai and Shereen Bhan.

The CCEA on Thursday will take a call on a new gas price formula, one that hikes gas prices to USD6.77/mmbtu from the current USD 4.2/mmbtu.  In the last 10 days there has been a U-turn by the oil ministry. The initial proposal was to hike ONGC's and Oil India's administered price mechanism (APM) gas price from USD 4.2/mmbtu immediately. However, the proposal has now been changed to the new gas price regime for all players, for all kinds of gas kicking in only after 1st April 2014. That incidentally is the date till which the KG-D6 USD 4.2/mmbtu price is valid. Also read: Left wants govt to put on hold move to hike price of gas TK Ananth Kumar, Director-Finance, Oil India said, ”If the gas price goes up from 4.2 to 6.7, we should get topline growth of close top 1000 cr and bottomline growth of Rs 600 odd crores, which will boost our earning per share (EPS) by about Rs 10/share. Nevertheless, it has been a Herculean task for the oil ministry to get to this stage. Most ministries including finance have had issues with Rangarajan's recommendations. The finance ministry had said the new gas price should be linked with long-term gas contracts India has signed with countries like Qatar.
That gives a price of USD 6.7/mmbtu today, but it could rise to USD 8-10/mmbtu later on in FY14 and FY15. Whereas, the fertilizer ministry which had rejected the Rangarajan formula, argues that a hike would increase the subsidy bill by Rs 10,000 cr annually.
Meanwhile, the Power ministry still refuses to play ball. It says the gas price should not be above USD 5/mmbtu because every dollar increase in the gas price, hurts the sector by Rs 10,040 cr. CNBC-TV18 learns Union Minister for Petroleum and Natural Gas Veerappa Moily is calling for a quarterly revision of gas prices, and not monthly as had been recommended. The industry is already up in arms saying a USD6-7/mmbut price is too little. However, they must keep in mind the CCEA is approving a formula and not a price. This USD 6.7 price is what holds good till June 30th and will rise after that almost to USD 8/mmbtu.