Ahluwalia calls for ab initio setting of natural gas price

Criticising the current gas pricing methodology where producers are asked to "discover" market price of the fuel by calling bids from consumers identified by the government, Planning Commission deputy chairman Montek Singh Ahluwalia has called for setting the price of natural gas at the beginning, instead.

"We should decide now ab intio what should be the price of natural gas. What should be the principles, which should be applied," he said yesterday at the launch of the book, Natural Gas in India: Liberalisation and Policy, written by Anil K Jain, a senior bureaucrat and former joint secretary (exploration) in the oil ministry.

"On the one hand, we (advocate) freedom to price gas on an arm's length basis. But on the other hand we also say that (companies) must allocate gas according to the government's priorities," he said citing example of the fertiliser sector, which could "bid for whatever price" because their input cost was pass through.

Urea-making fertiliser plants are accorded top priority in allocation of domestic natural gas by the government.

"I am not aware that any of the existing model (for pricing of gas) meet the test of economic rationality," he said.

Ahluwalia questioned the basis for fixing the price of $4.2 per million British thermal unit for the gas produced by Reliance Industries from KG-D6 block. Ahluwalia asked under what circumstances that formula should be determine the price of gas.