Govt orders CNG retailers to provide cost-break up

In a significant development, Oil Minister M Veerappa Moily has ordered CNG retailers to provide break-up of fuel price to consumers to ensure that they passed on the benefit of cheaper domestic gas to users.

Compressed natural gas or CNG sold to automobiles and natural gas piped to household kitchens will be the first fuel where consumer will get invoices providing break-up of price. Presently, no break-up of price of petrol, diesel, lPG or kerosene is provided to consumers.

Moily had earlier this month rejigged supplies to ensure that city gas companies got cheaper domestic gas to meet all of their requirements for CNG and piped natural gas (PNG) supplied to households for cooking purposes compared with the previous limit of 80 per cent for most states.

This led to a steep Rs 14.90 per kg cut in price of compressed natural gas or CNG and Rs 5 per kg reduction in rates of cooking gas piped into kitchens in Delhi.

Similar cuts in rates were expected in all states, except Maharashtra and Haryana, as city gas distributors stop buying higher-priced lNG and shift entirely to domestic gas. Not all benefits, however, has been passed on consumers in some places.

Now, Moily has ordered all city gas distribution (CGD) firms to "display break-up of CNG price at CNG stations" as well as "furnish the break-up of PNG price in invoice to the customer."

"The (CGD) entities would give following details in the break-up of CNG and PNG price: Cost of gas to the CGD entity, supply and distribution cost of CGD entity, company's margin, excise, VAT and any other tax," the Oil Ministry said in an order, issued with Moily's approval, yesterday.

All CGD companies have been asked to furnish the break-up of CNG and PNG price to the Ministry on annual basis by April 30 each year, the order said, adding that the data for 2013-14 should be furnished by April 30, 2014.

"Non-compliance of the guidelines by CGD entities would lead to cancellation of their domestic gas allocation for CNG and PNG," it said.

The companies will have to furnish to the Ministry complete break-up of cost of gas they receive at the entry point, their supply and distribution cost (indicating further break-up of all costs with auditable back-up details), company's margin, excise, VAT and any other tax.

The order said the Ministry was of the view that in order to ensure that the benefit of allocation of domestic gas to CGD entities is passed on to the end consumers and for transparency in pricing, the break-up of CNG and PNG prices need to be disclosed to the consumers.

The Ministry order was issued as a hike in CNG price looms from April when domestic gas prices almost double.

"We note that this (cut in rates announced earlier this month) is only a temporary relief to consumers as the domestic natural gas prices will almost be doubled from the current USD 4.2 from April 1, thus forcing the CGD companies to raise CNG/PNG prices to pass on the increased costs.

"In the absence of any offsetting subsidy, they would need to raise CNG prices by Rs 10.6 per kg and PNG prices by Rs 8 per standard cubic metre," Goldman Sachs said in a research note.

Goldman Sachs estimates the price of locally produced natural gas will climb to USD 7.8 per million British thermal units in April from USD 4.2 currently after the Rangarajan formula for pricing domestic gas is implemented.

The formula calls for pricing all domestically produced natural gas at the average of international hub rates and the cost of imported liquefied natural gas (lNG) in India.

All city gas entities, except those in Mumbai and Pune as well as Faridabad in Haryana which get all of their requirements from APM gas, bought between 20 to 27 per cent of their gas requirement from overseas.

Goldman said the additional requirement of 1.92 million standard cubic metres a day of domestically produced gas will be met by cutting supplies to non-priority sectors.