Natural Gas Pricing in India, 2014: Is the Hike Justified?
On June 27, 2013, the Cabinet Committee on Economic Affairs (CCEA), Government of India, decided to implement the pricing formula suggested by the Report of the Committee on the Production Sharing Contract Mechanism in Petroleum Industry (2012) headed by Dr. C. Rangarajan (Rangarajan Committee), Chief Economic Advisor to the Prime Minister of India. The gas pricing decision was notified by the government in January 2014. The new pricing regime was applicable from April 2014 for five years. As per this decision, the gas price would nearly double from $4.2 per mmbtu1 though estimates vary. Barclays Equity Research estimated the price at $8.3mmbtu in 2014-15 and expected it to rise to $9.1 in 2015-16 and $9.4 in 2016-17.2 The revised price is expected to generate additional $500 million in revenue to the government via royalty and taxes.3 Oil and Gas Companies (OGCs) have been demanding a rise in gas price which is regulated by the Government.
Not everyone was convinced about the need to raise gas prices so steeply and there were strong reactions including a Public Interest Litigation (PIL) against the government’s decision. Several questions arose in this context. Should the gas prices be regulated? Should the gas prices have been raised, that too so steeply? What is the basis of the increase? What is the impact of such an increase on various stakeholders? Will the government be forced to roll-back the price hike?
1 One mmbtu = 25.2 Standard m3 of natural gas measured at 1 atmospheric pressure and 15.56 degree Centigrade.
2 The Indian Express, January 11th 2014, http://indianexpress.com/article/business/business-others/govt-notifies-new-gas-pricing-formula/(accessed date: December 23rd 2015)
3 CNBC TV 18 moneycontorl.com, November 26th 2013, http://www.moneycontrol.com/news/economy/no-going-backgas-price-hikesnotification-soon-moily_997293.html?utm_source=ref_article (accessed date: December 23rd 2015)