Power,fertiliser ministries oppose OilMin move to raise price of gas

Under a “gas shortage condition” that exists in the country,the price may have to be regulated for the power and fertiliser sectors,it said. Since the price of power was being regulated,the price of fuel for power stations from domestic sources also needs to be regulated,it added.

The fertiliser ministry,in a separate note,said that gas from fields that were won by national oil companies (NOCs) through bidding,as well as from old fields handed under nomination,should be sold on “approved price formula” so that “prices are reasonable and gas could be used gainfully by the key sectors”.

The petroleum ministry has planned for the biggest raise in gas prices ever,and the first in five years,by proposing that consumer price for power and fertiliser be raised to Rs 4,142 from current Rs 3,200 per thousand cubic meters (TCM) with subsequent raise indexed to the wholesale price index — as recommended by the Tariff Commission. In a note to the Cabinet,the ministry had proposed that from 2012-13,the price fixed by Empowered Group of Ministers for Reliance gas at Rs 7,500 per TCM be levied on consumers.

But the power ministry contends that the immediate hike would hand more profit to gas producers than was required. “Consumer price at 10 percent above producer price is on the higher side considering that the Commission has already taken into account a higher post tax return of 15 percent while estimating the producer price.”

Moreover,the gradual increase over the next three years was “not in line with the recommendation of the Commission which has proposed fixing APM gas price based on normative production price”.

The fertiliser ministry,on the other hand,has questioned the Commission’s rationale of linking NOC or producer price — and hence the consumer price — with the WPI.

“The department does not agree to a WPI-linked increase in producer price every year as there does not seem to be a direct relationship between the cost of production of natural gas and increase in the WPI.” Any raise,it said,would burden the government further by raising the subsidy on urea by Rs 4,019 crore in 2012-13.

“If the petroleum ministry is interested to subsidise any loss to the NOCs in lieu of APM losses,alternative mechanism could be evolved including direct subsidy to the NOCs instead of disturbing the entire current subsidy regime and price structure of other sectors that have invested in the past based on stated pricing policies,” it said.