Column : Can’t do gas pricing in a vacuum

Jan 21 2013, 01:08 IST
Comments 0
SummaryAvoid implementing Rangarajan’s prescription till fertiliser and power are freed up.

of R50,000 crore (2012-13) was exhausted by July 2012. Industry has not received payments for the last five months. Additional demand for R10,000 crore will compound their miseries.

The price hike will also increase the cost of power generation. For the majority of power producers, this is a pass-through under PPA with state electricity boards (SEBs)/power distribution companies (PDS). However, the latter won’t find it easy to increase tariff.

States that heavily subsidise or supply power free of charge to farmers and poor households may not increase tariff at all. This, together with T&D losses, puts SEBs/PDS under serious stress.

Unlike fertilisers, here the government may be under no obligation to pay subsidy to SEBs. However, it comes up with re-structuring support to salvage them, viz recent approval of close to R2,00,000 crore package. That dents the exchequer.

Power companies who have set up plants under the competitive bidding route are the worst affected. Without the facility of a ‘pass-through’, they have to absorb entire increase in price. Their plight is like ‘babies born sick’.

Considering the criticality of fertiliser and power to the economy, the government assigns them top priority in allocation of gas. It even controls prices of their end-products and heavily subsidises their sales using the taxpayer money.

Why should then a formula be adopted that results in ‘doubling’ of gas price playing havoc with these sectors? Yet, if it cannot be avoided, then the government needs to re-work its ideas regarding control and subsidy on fertiliser/power.

Having a market-based mechanism for the pricing of gas—that would result in ever-escalating cost to fertilisers and power on one hand and controlling prices/tariff of latter at low level on the other—is inherently unsustainable.

The issue is relevant to pricing of all sources of energy, not just gas. Prime Minister Manmohan Singh states that “for development to be sustainable and inclusive, domestic prices should be aligned to international cost”.

Based on the recommendations of Dr Kelkar, the government is reportedly working on removing subsidy on diesel by next year; on LPG 25% in current year and 75% in the next two years and by one-third on kerosene in 2014-15.

Whether or not the Kelkar roadmap will be implemented, especially considering that this coincides with impending elections—states in 2013 and general elections in 2014—remains to be seen. What is on the anvil for power and fertilisers?

For fertilisers, in 2000, the Expenditure Reforms Commission (ERC) had come up with a roadmap for

Single Page Format
Ads by Google
Reader´s Comments
| Post a Comment
Please Wait while comments are loading...