Govt confirms gas prices could rise

Govt confirms gas prices could rise
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First Published: Wed, Sep 19 2007. 01 38 AM IST

A file picture of Union petroleum and natural gas minister Murli Deora (left) with secretary M.S. Srinivasan
A file picture of Union petroleum and natural gas minister Murli Deora (left) with secretary M.S. Srinivasan
Updated: Wed, Sep 19 2007. 01 38 AM IST
New Delhi: The government on Tuesday admitted that natural gas prices, which were fixed at $4.2 (Rs170.10) per million British thermal unit (mBtu) for the gas pumped out of the Krishna-Godavari (KG) basin by Reliance Industries Ltd (RIL), could increase, subject to the Centre’s approval.
The confirmation came on the heels of intense criticism from political parties who were reacting to an article on 18 September in Mint, which concluded that the government had previously set a floor price for the gas, rather than a cap, as everyone was led to believe because of discrepancies between a press note put out by the ministry of petroleum and natural gas and the minutes of a high-powered group of ministers’ meeting, which had decided the price.
“The gas prices can increase, but subject to government approval,” said M.S. Srinivasan, petroleum and natural gas secretary. The secretary, who had declined to comment on Monday, was responding to a question from Mint.
A file picture of Union petroleum and natural gas minister Murli Deora (left) with secretary M.S. Srinivasan
As Mint reported on Tuesday, the government has retained the so-called “biddable” component in a price formula, therefore keeping open the possibility of a rise in gas prices in the future. As a result, the price of $4.2 per mBtu was the floor price as most industry observers assume that oil prices are unlikely to fall below $60 per barrel. For the RIL price, the ministerial group had, while retaining the biddable component, pegged that at zero for the moment.
But the press note, issued by the ministry on 12 September after the empowered group of ministers’ (eGoM) meeting— headed by external affairs minister Pranab Mukherjee—did not say that the group had retained the biddable component.
The architect of that clause, deputy chairman of the Planning Commission, Montek Singh Ahluwalia, who is also a member of the eGoM, had this to say on Tuesday from the sidelines of the fourth Indo-US Economic Summit: “It was agreed to have a version of the formula, which would yield a lower price.”
This stems from the eGoM decision, which is stated in the minutes of its meeting as follows: “Though in the present instance the value of C (biddable component) is to be retained at zero, for the purpose of retaining the biddable character of the formula and the allocation of gas among priority sectors, the formula must retain C as a positive non-zero integer.”
While it sounds technical and esoteric, the implications of this are significant as it means India hasn’t capped the price of natural gas, which already sells for well above the $4.2 in global markets. A clear signal on this issue would have made future gas exploration, which the government is keen to bid out, a lot more attractive to energy companies, including major multinationals that are keen on extracting and selling gas in India.
It is still unclear why the ministry did not fully disclose the formula approved by the eGoM on 12 September or why it did not respond to specific, repeated queries on the issue from Mint earlier this week. RIL, for its part, had also declined to comment on theissue. The company spokesperson could not be reached for comment till late Tuesday.
Meanwhile, political parties reacted strongly to the government’s failure to clearly disclose the underlying issues involved in the gas pricing.
“How can the ministry’s note not clearly reflect the decision of the eGoM? How can the ministry keep the country in the dark?” asked D. Raja, national secretary of the Communist Party of India, which supports the ruling Congress-led government at the Centre.
Yashwant Sinha, a former finance minister and a Rajya Sabha member of the principal opposition, the Bharatiya Janata Party, maintained that the government had “deliberately misled” the nation.
“If the government had the courage of conviction, it wouldn’t have concealed this vital piece of information in the press note,” said Sinha. “The omission puts a question mark on the decision simply because the government chose not to be upfront about it.”
A spokesperson for the Congress party couldn’t immediately be reached for comment.
Tapan Sen, a Rajya Sabha member of the Communist Party of India (Marxist), the largest of the four Left parties that provide a critical outside support to the United Progressive Alliance government, said he had written several letters, without a single response, to the Prime Minister’s Office pleading that gas prices should not be linked to international crude prices.
“Unfortunately, the bids are always non-transparent and not cost-based,” he said. “Adding more variablity to the existing equation will only leave the state-owned consumer, National Thermal Power Corp. (now NTPC Ltd), the worst-affected.”
Swadesh Dev Roye, national secretary of CPIM-backed Centre of Indian Trade Unions (Citu), said the formula had too many variables, including global crude prices. “Now that the government’s press release and the eGoM’s decision don’t appear to match, it seems the ground is being prepared for a further hike in prices. This will impact domestic consumers, specially crucial industries such as power and fertilizers, in a big way.”
However, market players welcomed the government’s decision to not cap gas prices and instead fix a floor.
“We knew that the prices would go up. The fact that there is no cap is a good thing for Reliance,” said a Mumbai-based investment banker who did not wish to be identified.
On the Bombay Stock Exchange, RIL shares rose 1.5% to Rs2,058.40 on a day when the Sensex was up 1.06%.
ashish.s@livemint.com
Utpal Bhaskar and Udit Misra contributed to this story.
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First Published: Wed, Sep 19 2007. 01 38 AM IST