Biting the bullet on a tough reform measure, the government on Thursday took a politically sensitive decision to double natural gas prices to $8.4 (about Rs 510.13) per unit from April 1 next year. This move will push up the price you pay for everything from food items to public transport.
On the positive side, the decision is expected to attract foreign investors in the energy sector as the local prices align closer to global market levels.
The Cabinet Committee on Economic Affairs (CCEA) headed by Prime Minister Manmohan Singh approved the petroleum ministry’s proposal to price all domestically produced natural gas under a new formula suggested by a panel headed by Prime Minister’s economic adviser C Rangarajan.
This will be the first revision in gas prices in three years and will be effective for five years.
The new gas pricing policy will substantially push up profits of gas producers in India including the likes of Reliance, ONGC and Oil India.
But, it will have a knock-on effect on household budgets as refiners draw out more from consumer wallets.
Nearly everything that guzzles natural gas will become costlier. Vehicles that run on compressed natural gas will make public transport dearer, while electricity bills will edge up because some power generation units use natural gas as feedstock. Steel, cement and paints will turn costlier as a consequence.
While the cost of gas-based electricity generation is estimated to go up by around 60%, it is estimated that the overall impact on power generation will be around 20 to 25 paise per unit.
The revision in the price of gas produced in India from the current $4.2 per unit was bitterly opposed by user ministries of power and fertilisers as well as opposition Left parties who saw the move as helping some giant private companies.
However, the petroleum and natural gas ministry has reasoned that the increase in gas price was needed to incentivise gas exploration in the country.