Experts argue that the multiplicity of price points in the natural gas and petroleum sector in the country discouraged private investment.
Multiplicity of price points has created market distortions in sectors such as city gas distribution, as it led to considerable differences in prices for end-consumers.
There are multiple price points, depending on the source and producer. For fields under NELP, the product sharing contract (PSC) governed pricing, which allowed armÂ’s length prices subject to Government approval. Under a mutually agreed formula, gas price was set at $4.2 per mmbtu until 2014. However, this has discouraged several players in recent times.
City gas distributors with a higher proportion of lower-cost Administered Price Mechanism (APM) gas have priced it comparatively lower. In cities where proportion of gas from domestic sources is low, consumer prices are higher. Though some difference may be healthy, large variations could lead to distortions in related sectors.
The price distortion in the petroleum product segment is also criticised by experts. Diesel, domestic LPG (now limited to six cylinders a year), and kerosene have been sold at subsidised rates.
Even for petrol, which has been de-controlled since June 2010, Government approval is required for price revision. The quantum of under-recoveries and delayed compensation have seriously constrained cash flow in these companies, and restricted private sector participation, experts argue. The government has taken steps to reduce price intervention, and long-term solutions are anticipated.
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