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Business News/ Politics / Policy/  Government deregulates diesel prices, fixes new gas price
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Government deregulates diesel prices, fixes new gas price

The government also decided to relaunch the direct benefit transfer in a more effective manner

As a result of the deregulation, diesel prices in New Delhi will come down by Rs3.37 a litre with effect from midnight Saturday. Photo: BloombergPremium
As a result of the deregulation, diesel prices in New Delhi will come down by Rs3.37 a litre with effect from midnight Saturday. Photo: Bloomberg

New Delhi: Kick-starting economic reforms a day before the results to state elections in Haryana and Maharashtra are declared, the Narendra Modi-led National Democratic Alliance government on Saturday decontrolled the diesel price, making it market-linked and came out with a new gas pricing formula which is much lesser than the one suggested by the Rangarajan committee under the previous Congress-led United Progressive Alliance government.

As an immediate fallout of the decontrol of the diesel prices, price of the commodity in New Delhi will come down by 3.37 effective midnight Saturday due to persistent softening of global crude oil prices. The Indian crude oil basket has fallen below $90 per barrel due to a decline in demand on the back of concerns over global economic recovery.

L.K. Gupta, managing director and chief executive officer, Essar Oil Ltd, which has a strength of close to 1,400 retail outlets, said, “We welcome government’s decision to deregulate diesel. This will not only help in controlling the fiscal deficit, but also be advantageous for the consumers as they will now pay market rates for the fuel which is lower by more than 3 per litre. This will also leave more money with upstream companies for investment in the exploration and production sector thereby enhancing our efforts for energy security for the country ."

“Diesel deregulation will also bring the private oil marketing companies’ retail network into the system and will increase competition, benefiting the end consumer," Gupta added.

Announcing the decisions of the cabinet which met on Saturday, finance minister Arun Jaitley said the government has accepted the recommendations of a panel of secretaries that it had set up on the issue of finding a new gas pricing formula. According to the new formula, domestic gas price will now go up to $5.61 per million British thermal units (mmBtu) from $4.2 per mmBtu at present.

The Rangarajan panel had recommended the gas price unit to be increased to $8.4 per mmBtu.

This will be effective from 1 November and will be revised every six months. “The new pricing formula takes into consideration that there is sufficient incentives for drilling and also that it is not excessively burdensome on the consumers," Jaitley said at a press conference after the cabinet meeting.

D.K. Sarraf, chairman and managing director, Oil and Natural Gas Corp. Ltd, said, “It is a very positive step for ONGC as every 1$ rise in gas price increases our revenues by 4,000 crore and net profit by 2,350 crore. Therefore, ONGC stands to benefit from this."

He said the provision of revisiting the gas price every six months is an indication going forward, companies can get a higher price.

While he did not seem convinced that such a price will help the company in investing in the expensive deep-water exploration of gas, especially in the Krishna-Godavari basin, he said, “we will make all our efforts to explore and exploit the reserves available".

P. Elango, former chief executive officer, Cairn India Ltd, said, “I look at it as the first step in the right direction. This is a moderated increase keeping in mind the global fall in crude prices and also the dynamics of the Indian market."

He further said that since the government will revise the price every six monthly, more or less like the Rangarajan Committee formula suggested, this indicates that India will slowly move towards free natural gas prices.

Rubbishing the claims that the price will not be incentive enough for any company to go ahead and invest in deep-water blocks, Elango said when a company invests in a country, it invests and explores for both oil and gas and a clear policy is what it needs more than a higher price.

The previous UPA government had intended the increase doubling the price of gas to kick in from April. But the higher price couldn’t take effect after the Election Commission said on 24 March that it would have to be deferred until after the April-May general elections. The Modi government had earlier deferred a decision on the matter for three months after coming to power.

The cabinet also approved to relaunch the direct benefit transfer scheme in 54 districts. Jaitley said as there are now 60.2 million new accounts created through the Jan Dhan Yojana, the subsidy on liquefied petroleum gas (LPG) will now be transferred to the bank accounts of beneficiaries. Jaitley said the programme will be implemented in a mission mode between 10 November and 1 January 2015. “Those who do not have a bank account will continue to receive subsidized LPG gas cylinders," he added.

The cabinet also approved the fertiliser ministry’s proposal to provide 14,500 crore subsidy to the cash starved fertiliser industry via a special banking arrangement route.

PTI contributed to this story.

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Published: 18 Oct 2014, 07:46 PM IST
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