Moily climbs down, agrees to gas price of $6.8 per mmBtu: report

Petroleum minister Veerappa Moily has climbed down on gas pricing and is reported to have agreed to a lower price of $6.8 per million British thermal units, against the earlier proposed $8.4 per mmbtu, beginning next financial year.

"The new gas price that will be applicable is $6.8 per mmBtu and not $8.4, I do not know where this figure is coming from," The Economic Times quoted Moily as saying after a cabinet meeting chaired by the prime minister.

While Moily still seems to have reservations over the new gas price, the cabinet seems to have hammered out the new figure as a compromise rate between the earlier price of $4.2 and the proposed price of $8.4 per mmBtu.

The petroleum ministry's decision to hike the price of natural gas produced in the country to $8.4 has been widely criticised, especially by the opposition parties, for the huge benefits it would bring to Reliance Industries (See: Reliance to gain most from gas price hike).

There has been strong opposition from the CPI and the CPI (M), BJP, Telegu Desam and the AIADMK led by Tamil Nadu chief minister J Jayalalithaa.

However, the decision to review the new gas price followed a finance ministry note to the petroleum ministry insisting that RIL would have to sell gas at $4.2 per mmBtu as agreed under the production sharing agreement.

The petroleum ministry decided to double the price of domestically produced natural gas under a formula set by a committee headed by C Rangarajan, the chairman of the prime minister's economic advisory council.

The formula based on the average prices of imported liquefied natural gas (LNG) and the weighted average of gas prices in North America, Europe and Japan, has also been criticised by industry experts.

Moily had justified the hike saying it would help increase domestic gas production by spurring explorers like RIL into action.

The petroleum minister, however, refuted reports that finance minister P Chidambaram has insisted on RIL delivering the gas shortfall it still owes the country at the old price of $4.2 per mmBtu.

"There is absolutely no discord between the finance ministry and the petroleum ministry on this issue as the CCEA has decided to accept the recommendations of the Rangarajan panel and gas prices will be hiked accordingly. There is no plan to alter this policy," the report quoted Moily as saying.

He also asserted that RIL will now not be forced to charge only $4.2 per mmBtu for the gas it was unable to produce at the contractual output levels.