EGoM to meet on gas pricing as ministries reject Rangarajan formula

The empowered group of ministers (EGoM) on gas pricing will meet on 7 May to decide on the Rangarajan committee's formula for nearly doubling the price of domestic natural gas amidst differing perceptions on gas pricing among the various government departments.

The finance ministry has rejected the natural gas pricing formula suggested by the Rangarajan Committee and has instead suggested an alternative formula based on wellhead prices charged by suppliers in the region (Oman, Qatar, Abu Dhabi and Malaysia) for long-term contracts.

The ministries of power and fertilisers have also outrightly rejected the linking of domestic natural gas prices with international prices, a demand made by Mukesh Ambani-owned Reliance Industries Limited (RIL) and supported by the Planning Commission.

Prices calculated as per the alternative formula may be lower than those based on the Rangarajan Committee's formula as wellhead prices do not take into account transportation costs, according to experts.

In fact, the finance ministry has made this suggestion in a note for the consideration of the empowered group of ministers (EGoM) while deciding the road map for gas pricing.

Meanwhile, RIL and its partner BP had recently made representation to Prime Minister Manmohan Singh and Planning Commission deputy chairman Montek Singh Ahluwalia seeking international prices of around $12.5 mmBtu for domestic natural gas against its current price of $4.2 per mmBtu.

The formula for pricing and indexing domestically produced gas with international prices as suggested by the Rangarajan Committee would result in its price coming close to the RIL figure whereas the alternative formula using wellhead prices would keep prices at current levels.

In a note to the petroleum ministry, the fertiliser ministry said the pricing formula suggested by the Rangarajan committee would raise the annual subsidy outgo on fertilisers to Rs16,992 crore by the end of the 12th Plan in 2016-17.

The power ministry estimates an annual impact of around Rs43,360 crore considering an increase in its total gas-based capacity to about 28,000 MW in a few years.