According to some estimate, government will have to bear an additional subsidy burden of Rs 28,800 crore if it implements the Rangarajan committee formula for pricing natural gas.
The committee, set up under Prime Minister’s Economic Advisory Council Chairman Rangarajan, suggested a price formula which is the mean of the producer price of liquefied natural gas imports to India and the price prevalent in the US, Europe and Japan.
According to this formula, the base price of domestic natural gas comes to around $7.4 per million British thermal unit (mBtu).
Natural gas is primarily consumed by the fertiliser and power industries. Since the governmentÂ’s share in revenues from all the producing gas fields is around 12 per cent, the rise in its share of profit would increase by less than Rs 100 crore and royalty by about Rs 100 crore.
Meanwhile, it may be noted that the price arrived through the above formula is less than the price that may prevail if the formula proposed by Reliance Industries (RIL) is implemented. According to RIL’s formula, the price comes to $13-14 an mBtu. RIL has been seeking this price for its KG-D6 block produce.
The company had earlier proposed to price KG-D6 gas at 12.67 per cent of Japan Customs-Cleared Crude (JCC), plus $0.26 per mBtu.
It had said the formula should be applied to KG-D6 output, since it was being used for imported liquefied natural gas. Currently, for gas produced from its field, RIL gets $4.2 an mBtu, fixed in 2007 on a formula linked to Brent crude oil price. A price revision is due in 2014.
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