GOVERNMENT OF INDIA
Ministry of Petroleum and Natural Gas

RAJYA SABHA
STARRED QUESTION NO. 75
ANSWERED ON DECEMBER 10, 2013

QUESTION
Impact of Gas Price Rise on Economy

*75: SHRI RAJEEV CHANDRASEKHAR 

Will the Minister of PETROLEUM AND NATURAL GAS be pleased to state: 

(a)   whether Government has conducted any study on the impact of sharp rise in gas price on the economy, consumers and other reliant and downstream sectors, such as fertilizers, power etc.; 

(b)   if so, the details thereof, and the remedial measures Government has taken or proposes to take in this regard:

(c)    whether Government is aware that its decision to equate domestic gas price with imported LNG has additional cost burdens of liquefaction, transportation and regassification: and

(d)   the total cost borne by tax payers for the subsidies due to this price hike and how Government proposes to meet this additional cost burden?

ANSWER
MINISTER OF PETROLEUM & NATURAL GAS
(Dr. M. VEERAPPA MOILY)

(a) to (d): A statement is laid on the Table of the House.

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STATEMENT REFERRED TO IN REPLY TO PARTS (a) TO (d) OF RAJYA SABHA STARRED QUESTION No. 75 TO BE ANSWERED ON 10.12.2013 REGARDING IMPACT OF GAS PRICE RISE ON ECONOMY

a): The Government had constituted a committee under the chairmanship of Dr C. Rangarajan, Chairman, Economic Advisory Council to the Prime Minister in May, 2012, to look into the Production Sharing Contract (PSC) mechanism in petroleum industry. One of the Terms of Reference (ToR) of the committee, among others, was; Structure and elements of the guidelines for determining the basis or formula for the price of domestically produced gas, and for monitoring actual price fixation;

The Committee considered all the aspects of gas pricing including impact of rise in gas price on the economy, consumers and other downstream sectors. The Committee kept in perspective balancing the twin Government objectives - incentivizing domestic gas producers and protecting consumer interests. The Committee submitted its report in December, 2012.

The Government duly considered recommendations of the Rangarajan Committee and views of other stakeholders during the process of Inter Ministerial Consultations. Major consumers of natural gas being power and fertilizer sectors, views of MOP and Department of Fertilizer (DOF) have been considered while taking a decision. Subsequently, Natural Gas Pricing Guidelines, 2013 were approved by the Government which will be applicable from 1st April, 2014 and will be valid for a period of five (5) years.

b): As per MOPNG estimates, the outgo in power sector for every US $ 1/mmbtu increase in gas price will be US $ 628.63 million (Rupees 3457.5 crores @ Rupee Dollar exchange rate of 1 US$ = Rupees 55) considering current allocation of 37.52 MMSCMD. Outgo in Fertilizer sector due to US $ 1/mmbtu increase in gas price taking domestic supply at current allocation of 31.50 MMSCMD will be US $ 406 million (Rupees 2233 crores @ Rupee Dollar exchange rate of 1 US $ = Rupees 55).

The impact on CNG transportation and LPG cylinder has been estimated to be Rupees 2.93/kg and Rupees 27.9/cylinder respectively for every US $ 1/mmbtu increase in gas price.

c): The Government never considered equating domestic natural gas price with imported LNG. The Natural Gas Pricing Guidelines, 2013 ensures that producers in India get at least the average price of what producers elsewhere in the world are getting. The formula approved by GOI considers well head prices of imported LNG, which exclude Liquefaction & transportation costs. Regassification costs do not form the part of FOB/DES prices considered in the formula.

d): The Government has only approved formula for gas pricing. As such actual price will be determined after the guidelines are notified, based on the different global benchmark prices prescribed in the formula. Actual financial burden will be calculated on the basis of the actual natural gas price.