Gas price hiked to $8.4; CCEA okays Ranga panel recos

Moneycontrol Bureau

The Cabinet Committee for Economic Affairs (CCEA) on Thursday approved the proposal to hike the natural gas price to USD 8.4 per mmbtu (metric million British thermal units) from April 1, 2014, reports CNBC-TV18.

The CCEA has approved the Rangarajan committee's formula for gas pricing. The new price will apply uniformly to all producers, be it state-owned firms like Oil and Natural Gas Corp (ONGC) or private sector Reliance Industries. While it was previously said the new rates would apply to regulated or APM gas produced by firms like ONGC immediately, the pricing as per Rangarajan formula will come into effect from April 1, 2014, just when RIL's KGD6 formula of USD 4.2/mmBtu runs out.

CCEA further noted that Rangarajan committee's formula for gas pricing would be valid for five years and gas prices will be revised quarterly from April 1, 2014 onwards. The oil ministry in its final proposal had suggested to increase gas price to above USD 6.7 per mmBtu level from current USD 4.2 currently

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. 

Oil minister Veerappa Moily informed CNBC-TV18 that he and finance minister will explain CCEA’s decision on gas price on Friday.

The oil ministry’s note to CCEA had proposed new gas price between USD 6.76/mmBtu to USD 8.93/mmBtu in FY14. It further proposed that price should be around USD 10.29 in FY15 and should be raised to USD 10.92 in FY16.

The natural gas prices have not been increased since past three years as the oil ministry faced stiff resistance from power and fertiliser ministry. Following gas price hike fuel cost of gas based power plant is likely to double and average power cost is seen rising by 16 paise per kwh.

The Rangarajan formula uses long-term and spot liquid gas (LNG) import contracts as well as international trading benchmarks to arrive at a competitive price for India. While the Rangarajan panel had recommended revising domestic gas prices every month based, the Oil Ministry changed it to a quarterly revision.

Though the average of of the two currently comes to USD 6.775, the price of gas in April next year when these guidelines will come into effect would be around USD 8.42 and over USD 10 in the following year. This is because Petronet's deal with Qatar's RasGas (India's only functional long-term LNG contract) has a price-cap which lifts in January 2014, linking gas prices fully with crude.

(With inputs from PTI)