Biting the bullet, UPA government today approved the near doubling of natural gas prices to $8.4 from April 1 next year, a move which will result in the rise of power tariff, CNG, urea costs paid by consumers.
The revision in prices was bitterly opposed by user ministries of power and fertiliser as well as opposition Left parties who saw the move as directly helping Mukesh Ambani's Reliance Industries.
This will be the first revision in gas prices in 3 years.
The Cabinet Committee on Economic Affairs (CCEA) headed by Prime Minister Manmohan Singh approved Oil Ministry's proposal to price all domestically produced natural gas as per a complex formula suggested by a panel headed by Prime Minister's economic advisor C Rangarajan, a top source said.
The new price will apply uniformly to all producers, be it state-owned firms like Oil and Natural Gas Corp (ONGC) or private sector Mukesh Ambani's 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 $4.2/mmBtu runs out.
The Rangarajan formula would be applicable for five years.
The 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, the Oil Ministry changed it to a quarterly revision.
Though the average of the two currently comes to $6.775, the price of gas in April next year, when these guidelines will come into effect, would be around $8.42 and over $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.
While RIL's KG-D6 gas price was fixed in 2007 at USD 4.205 per mmBtu for first five years of production, APM gas rates were last revised in June, 2010 when prices were raised to $4.2 from USD 1.79. RIL began production from its eastern offshore KG-D6 field in April 2009.
Administered Price Mechanism (APM) gas constitutes about 60 per cent of current domestic production of about 110 million standard cubic metres per day. RIL