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City Gas Distribution – moving towards a better future

In addition to the absolute relief of $2/mmbtu in FY24 (vs Oct 2022 price), the pricing direction announced for the next few years (i.e., escalation of $0.5/mmbtu annually), provides the much-needed visibility and clarity on priority sector gas costs for CGDs, believe experts.

December 02, 2022 / 06:58 AM IST
Representative image

Representative image

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The Government of India had appointed a committee of experts headed by Kirit Parekh to look into the challenges faced by the city gas distribution (CGD) companies in the pricing of the gas sold to the end consumer. The problem of pricing became even more critical as globally the prices of natural gas rose sharply (more than doubling), while the CGDs were forced to calculate the price as per the administered price mechanism set by the government. This put pressure on their margins and impacted their profitability.

Committee recommendations

The Parekh Committee submitted its proposal to the government on November 30, in which it has proposed a gas price ceiling of $6.5 per metric million British Thermal Unit (mmbtu) (currently at $8.57 per mmbtu) for legacy fields with a floor price of $4 per mmbtu. Gas prices will rise $0.5 per mmbtu annually, with complete liberalization of domestic gas by 2027.

The committee has also proposed the removal of the price ceiling on deep-water gas production in 2026 and gas allocation to fertilizers and the city gas sector under the priority sector. Experts from the sector believe that this should help lower government fertilizer subsidies and also help raise gas penetration in the country as new city gas networks are built.