In a far-reaching decision, the Indian government on Wednesday raised natural gas prices by more than double to USD 4.20 per mmBtu, a move that will result in a rise in power and fertilizer production cost and rise in CNG rates.
The Cabinet hiked price of gas sold to power, fertilizer and city gas projects from Rs 3,200 per thousand cubic meters (USD 1.79 per million British thermal unit) to Rs 6,818 per
thousand cubic meters (USD 3.818 per mmBtu), Information and Broadcasting Minister Ambika Soni said.
After adding royalty, the price for user industires would be Rs 7,500 or USD 4.2 per mmBtu, at par with the rate at which Reliance sells its gas.
Apurva Chandra, Joint Secretary in Oil Ministry, said the decision that would come into effect once the decision is notified in the next few days, would result in a rise in fertilizer production cost, power generation tariff and CNG
price.
Fertilizer prices will not be increases as the government subsidises the sector. But today's decision would result in rise in fertiliser subsidy by Rs 3,500 crore. "The Government
stands to gain (in royalty) an amount larger than this subsidy payout," he said adding the impact to the government would be positive.
The new gas price on an overall basis would result in 2.75 per cent increase in power tariff and up to 20 per cent hike in price of compressed natural gas (CNG) sold to automobiles in cities like Delhi.
CNG in Delhi currently costs Rs 21.90 per kg.
State-run ONGC and OIL produce 54.32 million cubic meters per day or about 40 per cent of total gas produced in the country, from fields given to them on nomination basis. This gas is sold on government controlled rates - about 50 mmscmd to power and fetilizer units and city gas projects at USD 1.79 per mmBtu and rest to other industries at USD 4.75 per mmBtu.
"ONGC and OIL have been making substantial losses in their gas business. The (current) low prices of gas have discouraged national oil companies from making investment (in raising dwindling output). Therefore, it became essential to increase the prrice of gas," Soni said.
On top of the USD 4.2 per mmBtu, state gas transportation and marketing firm GAIL India would be allowed to charge Rs 200 per thousand cubic meters or 11.2 cents per mmBtu as marketing margin. Over and above this would be the
taxes and other levies and pipeline transportation charges.
The move that will help the state-run firms break-even in gas business, Chandra said adding ONGC would get an incremental revenue of Rs 6000-7000 crore and OIL Rs 700-800 crore.
The new price will be for period upto March 31, 2014, the time till when Reliance Industries has been allowed to charge USD 4.2 per mmBtu price of gas from its KG-D6 fields.