New Delhi, Dec 01: India’s plan to hike gas prices by about a third as it edges toward market rates promises relief for hard-pressed state energy firms, but will draw flak from fertiliser and small business lobbies worried over input costs.
Nearly two decades after kicking off market reforms, India has eased controls on most sectors of the economy, but still sets the prices of petrol, diesel, cooking gas, kerosene, natural gas and fertiliser.
The oil ministry’s plan for the biggest jump in administered prices ever, and the first in 5 years, will boost profits for Oil and Natural Gas Corp and Oil India Ltd, and generate funds to extend the lives of their depleting oil fields.
“A gas price rise will be a positive signal for the investor community that India is moving towards market-oriented prices, but the only immediate victim would be small industries, which may find it difficult to pass on the rising input cost,” said Manish Baghla, a senior manager.
The hike in the administered price, which applies to the 40 per cent of India’s gas output of 140 million standard cubic metres a day (mmscmd) that is sold mainly to power and fertiliser firms, is a key step towards reducing distortions in a market with more than a dozen rates.
While power companies can pass fuel costs on to consumers, fertiliser firms get a government subsidy for higher input costs.
“The government wants to cap the subsidy for fiscal management and any increase in input costs will raise the subsidy burden. There will be a problem in allocation of the subsidy,” said a fertiliser ministry official.
“In 2009/10 the subsidy for the fertiliser sector is fixed at 500 billion rupees and we are seeing a shortfall of at least 200 billion rupees.”
So the fertiliser ministry opposes the plan to raise prices in steps.
“In many countries the priority sector gets gas at a cheaper rate. Raising prices in tranches is not a solution,” said a fertiliser ministry official, who vowed that the ministry would air its concern over the bid to raise administered prices.
The official, who declined to be identified because he is not authorised to speak to the media, said the ministry would prefer to have the pricing issue for the whole sector examined in a comprehensive way.
A Spanish firm, Mercados EMI, has been hired to study the possibility of a uniform domestic price for natural gas, B. C. Tripathi, chairman of state-run gas firm GAIL (India) Ltd, said last month.
“The gas price note has been tossed around for years and nothing has happened,” an oil ministry official said, referring to the plan to raise administered gas prices for ONGC from 3,200 rupees/thousand cubic metres (mscm) to 4,142 rupees in the first phase, after an escalation clause for inflation.
“The ultimate vision is to see gas prices aligned more towards the actual fuel value,” the official said.
India’s petroleum ministry is in talks with other ministries about raising the administered gas prices, R. S. Pandey, the ministry’s top bureaucrat, said last month.
However, Pandey gave no timeline for the decision, which will be made by the federal cabinet.
Each $1 per million British thermal units (mBtu) increase in administered gas prices raises the cost of fertiliser production by about $11.30 a tonne, or an annual impact of $200 million, a fertiliser industry expert said.
Gas makes up about 9 per cent of India’s energy mix, which is expected to rise to about 12 per cent by 2030 as production grows.
–Agencies