Column: The gas about gas

Apr 07 2014, 14:59 IST
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SummarySections of the govt, and BJP, think the gas hike is a rip off, but they’re all ignoring the facts

Why don’t you read the Parliamentary Standing Committee (PSC) report on gas pricing, says a senior BJP leader in response to the query as to why some of his party colleagues are casting AAP-style allegations about the gas price hike, and saying the Rangarajan formula-based price hikes need to be thoroughly reviewed. Though the BJP is pro-development, he says, it is not going to sit around and watch a scam in the making. Indeed, in response to Prashant Bhushan’s petition, even the Supreme Court has asked the government to explain the Rangarajan formula as well as the other Bhushan chestnut, that if Reliance Industries Ltd’s (RIL) partner Niko sells gas in Bangladesh at $2.34 per mmBtu, why does RIL want 3.5 times that.

The PSC makes points that, on their face, seem reasonable. So, it would like the domestic costs of production to be factored into the Rangarajan formula, for prices to be rupee-denominated instead of in dollars, for Russian gas export prices ($8.77 per mmBtu) to be included in the formula instead of Japanese import prices ($14-16). Presumably, this is what the government did since it took over a year to notify the Rangarajan formula, but given that doubts still persist—in even the likely ruling party—it is worth re-examining the PSC points.

At the outset (see graphic), there is no one price of gas, not just globally, but even in India—Indian prices varied from $2.52 to $17.44 per mmBtu in FY12. So, if someone turns around and says that, at the likely Rangarajan price of $8.2, RIL is getting 3.5 times the Bangladesh price, it can turn around and say that India imports gas at more than double what it is to be paid. RIL is not the biggest beneficiary of the hike; the government gets the most by way of royalties, taxes and cesses, and it is ONGC after that since it produces 5 times what RIL does. But let’s ignore this inconvenient truth since it takes the sting out of the allegations.

Let’s take the PSC’s point about domestic costs first. RIL quotes a report by consulting firm IHS CERA as saying over 85% of India’s natural gas reserves are viable only at prices upwards of $10 per mmBtu. But forget RIL, ONGC has said, according to a government press release, it needs at least $7 to make gas exploration viable—a recent press report says the PSU wants $13 to

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