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Ourview | A poor pricing solution

Ourview | A poor pricing solution
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First Published: Sun, Sep 11 2011. 10 19 PM IST

Shyamal Banerjee/Mint
Shyamal Banerjee/Mint
Updated: Sun, Sep 11 2011. 10 19 PM IST
The average Indian is getting calorie-conscious by the day. Aiding him no bounds is the media: television shows and printed write-ups tell him how Indian food need not be greasy and yet can satiate his senses. This is a perfectly healthy influence.
Shyamal Banerjee/Mint
But that is not entirely the case when it comes to dealing with the energy consumed by his machines. For example, he pays around 53 paise for every kilocalorie of diesel consumed; and this, when the mass consumption transportation fuel is subsidized by the government. Imported gas costs a little over half that and is clean. Yet, its consumption is modest even though energy and resource shortages are significant; imported gas constitutes 25% of the total gas consumed in the country. And, there are no gastronomic innovations to fix this issue; elaborate, expensive infrastructure alone can lead this gas supply to the consumer. Firms are now entering the business of setting up terminals to import gas as well as laying pipelines to the consumer’s doors.
A heap of regulations born of populism in an environment of scarcity casts its shadow gravely over the gas sector. Domestic gas prices cannot be “discovered” freely since the government has a preferential supply policy towards the fertilizer and electricity sectors. In the case of the former, the Union government foots a hefty subsidy bill while for the latter, there is an implicit subsidy for the states’ power utilities. This blunts the attractiveness for companies to invest in the domestic oil and gas exploration business, the key to reducing energy scarcity in the most cost-effective manner. Besides this, penetration of gas consumption in the largest consuming sector, electricity, is difficult since states don’t offer consumers the choice to pay a higher tariff when the load rises. In the absence of this incentive, power producers shy away from imported gas, which is more expensive than alternatives: Domestic coal is sold by the government at a discount to global prices, while domestic gas prices average at one-third of it.
Rather than revisit and address these basic issues, the government is attempting patchwork to solve the immediate issue: The divergent prices arising out of government control over domestic gas prices and the rising trend in imported gas supply. A committee led by the Planning Commission has recently suggested against pooling the two prices—imported and domestic. Sensible. But then it says keep the priority supply arrangements on, and allow domestic producers to earn a price below the imported mark.
It will be good for the country’s energy economy if these kinds of “compromises” are avoided and price discovery mechanisms are allowed free play.
Should gas prices be pooled? Tell us at views@livemint.com
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First Published: Sun, Sep 11 2011. 10 19 PM IST
More Topics: Ourviews | Food | Calories | Energy | Resource |