The future of the ambitious recommendations by the C Rangarajan Committee on doubling of domestic gas prices seems to be heading towards uncertainty as amid opposition from the Power Ministry along with the Planning Commission, the Petroleum Ministry has now asked the recently formed Vijay Kelkar panel to review the pricing formula.
Resultantly the meeting of the empowered Group of Ministers (eGoM), which was supposed to take a final call on the Rangarajan Committee’s recommendations on May 8, has now been indefinitely postponed, till the Kelkar panel comes up with its views on it.
Also the Kelkar panel, which was formed in March this year by the Petroleum Ministry to enlist measures for enhancing production of oil and gas in the country, has been asked by the nodal ministry, according to sources close to the development, to take a view on the formula suggested by the Rangarajan panel and inform whether it would be beneficial for the sector or not in the long run.
The Kelkar panel, headed by former Finance Secretary Vijay Kelkar, has been asked to give its views on Rangarajan panel’s recommendations within six months, though sources said that this could be preponed, considering the urgency of the matter. Even the Finance Ministry had earlier objected to the gas pricing formula on technical grounds.
According to official sources, the key suggestion of the Rangarajan Committee – doubling of the natural gas price from the current $4 per million British thermal unit (mmBtu) to $8 per mmBtu, which according to it would bring uniformity in prices of all forms of gas produced in the country – has received strong opposition from the Power Ministry which has objected to the pricing of gas in dollar terms.
The Rangarajan Committee had suggested that doubling of gas prices could be done by calculating the average of international basket prices and imported lNG price. By doing so, there would be uniformity in prices of all forms of gas produced in the country, natural gas, shale gas as well as coal bed methane. Also this would provide India with a level playing field in the international gas market.
However while presenting its views on the gas pricing formula to the Petroleum Ministry, the Power Ministry has said that when gas is a domestic asset and is mainly used within the country, then how can it be valued in dollar terms.
It further indicated to the Petroleum Ministry that in case there is fluctuation in dollar movement in international markets, the power sector as a customer would have to bear the brunt of increased costs.
The Planning Commission on the other hand has objected to Rangarajan panel taking the Japanese oil price index into account for suggesting gas pricing formula. It is of the view that the Japanese index apart from being “irrelevant” to Indian market, is also on the higher side, which could take the gas prices to around $14 to $15 per mmBtu.
Though at the same time, the Planning Commission has accepted the Rangarajan panel’s other recommendation on revenue sharing model which if okayed by the Centre, would allow private explorer to share revenue generated from exploration of oil and gas with the Government.
Currently the explorer gets away by recovering his initial costs from the reserve and does not even share it with the Government.
Sources said that revenue sharing models should be subjected to frequent changes so that the Government is able to generate some profit from its reserves given out to private explorers.
Till the time Kelkar panel does not come up with its review of Rangarajan Committee’s recommendations on gas pricing, these could remain in limbo.
The panel headed by Rangarajan, who is the Chairman of the Prime Minister’s Economic Advisory Council (PMEAC), was formed by the Prime Minister Manmohan Singh last year to introduce greater reforms in the oil and gas sector.