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Government defends new gas price, but questions abound

business Updated: Feb 12, 2014 00:24 IST
Anupama Airy
Anupama Airy
Hindustan Times
Arvind Kejriwal

Delhi Chief Minister Arvind Kejriwal opened a whole new front in his anti-corruption crusade on Tuesday when he ordered the filing of an FIR against the present and former petroleum ministers and Reliance Industries Ltd chief Mukesh Ambani for alleged collusion in hiking the prices of natural gas from $4.2 per unit to $8.4 per unit.

Kejriwal’s decision evoked mixed responses from the government, experts and the stock markets. RIL’s stock fell by nearly 2% on both BSE and NSE.

Petroleum ministry officials said the new gas pricing was done in line with the mandate by the Supreme Court laid down in 2010 that clearly ruled that the Union government is the owner of natural gas resources and is competent to fix its price. However, a senior bureaucrat had a different take: “The government should leave fixing of prices to competition ...what went wrong is the way the government announced doubling of gas prices from $4.2 a unit to $8.4 a unit almost a year back in June 2013.”

“The new price is the weighted average price of gas in international markets... it is not the actual cost of production incurred by developers like RIL or ONGC and OIL,” he pointed out, adding that nowhere in the world is the price of domestic gas $8 a unit. “You need to strike a balance between producers and users in offering the right price,” he said.

An industry expert questioned as to why the price of gas is being fixed in dollars when the government and companies earn revenues in rupees. Also, the higher price has a direct impact on user industries such as power, fertiliser and steel, yet the government has not spelt out details of the new mechanism.

The government’s logic is simple: India spent close to $7.5 billion or Rs 43,680 crore in importing nearly 13 million tonnes of LNG in 2012-13. It will import close to 20 million tonnes a year, for which it would be shelling out $13 billion or Rs 81,120 crore.

“To reduce dependence on costlier imports and increase domestic gas production, we need to attract domestic and global companies to explore oil and gas in India,” the ministry says.

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