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Goyal picks holes in UPA gas formula

June 30, 2014

Minister says 'anomalies' must be fixed before revising rates

POWER and coal minister Piyush Goyal on Friday said that there are anomalies in the United Progressive Alliance's (UPA) formula for fixing natural gas prices which need to be set right before arriving at a fair rate for the fuel, which is also used as an input for making urea. According to news agency PTI, Goyal pointed out that the affordability of power and fertiliser sectors, which consume two-third of all gas produced in the country, should be kept in mind.

This appears to be a clear indication that the new government is not in favour of doubling the price of natural gas to $ 8.8 per million British thermal units (mmBtu), announced by the UPA. The Narendra Modi government has already deferred by three months the decision to hike gas prices. It has been decided that a comprehensive assessment is needed on the issue before deciding on a new rate.

Goyal was a member of the Parliamentary Standing Committee on Finance, which had pointed out flaws in the Rangarajan formula on the basis of which the price of natural gas was doubled from $ 4.2 mmBtu to $ 8.8 Goyal said that the committee had reported a number of anomalies in gas pricing. The Rangarajan formula recommends a price based on the average cost of importing liquefied natural gas (LNG) into India and rates prevailing at international hubs in the US and the UK as well as the price of gas imported into Japan.

In Goyal's opinion, gas prices in India cannot be fixed based on a formula that includes Japanese imports. "Japan is an importer of gas and not a gas trading hub," Piyush Goyal, Power & coal minister FIND OUTTHE SOLUTION he told PTI. He added that the new government has been in office for only one month and it is important that "we study the issue in its entirety". The decision had come as a setback for companies like Reliance Industries, which was pushing for the increase in the price of natural gas produced from its fields. The doubling of the natural gas price would have led to a `2 per unit increase in the electricity tariff, a `12 a kg hike in CNG prices and a huge jump in the fertiliser subsidy outgo. This would leave fewer resources with the government for social welfare and infrastructure projects.

If the Rangarajan formula were to be implemented from April 1, gas price would have jumped to $ 8.34 per mmBtu unit from $ 4.2 currently. The formula calls for rates to be revised every quarter and the price in July would have been close to $ 8.8.

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Source: Mail Today (India)

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