Gas price formula: Moily, ministry officials differ over implementation

Oil minister M. Veerappa Moily and his officers are not on the same page - when it comes to fixing the date for implementing the new gas price. Moily last week asked the election commission to reconsider its decision to "put in abeyance" the notification for the same till the election process was over. His request was subsequently shot down by the commission.

But officers in the ministry are reluctant to endorse the minister's position. In private conversation they say, the outgoing minister has no right to push for the new pricing.

In June 2013, the union Cabinet accepted the formula suggested by a committee led by the chairman of the PM's economic advisory council, C Rangarajan, linking the domestic gas price with international benchmarks. This decision was notified by the petroleum ministry in January this year, and was to be implemented from April 1. But the election commission halted this.

"The officials in the ministry who dealt with this issue were not taken in confidence, when the minister wrote this letter to the commission. The outgoing minister has no right to do this," says a senior bureaucrat in oil ministry, who wished to stay anonymous.

Moily on May 1, wrote a demi-official letter to the election commission. "There are contractual obligations, which were made in the production sharing contracts. The cabinet has already cleared it, and it has to be implemented," Moily told BT. The gas prices will have to be implemented from April 1, he said.

There are no favours to any one, he said, the country cannot afford imports of oil and gas worth $160 billion, the new formula will allow international players to invest more and increase India's domestic gas production. Reliance Industries is pushing for implementation of the new gas price from May 13 - a day after polling ends. The commission, however, communicated to the ministry, that it will have to wait for the election process to end. The process will end with the formation of the new cabinet.  

The new government will have to take up this issue, and if the officers are to be believe, it might reconsider the formula. Most of the pre-poll surveys are suggesting that the opposition BJP led government is a favourite to come to power. In an earlier conversation with BT, senior BJP leaders had said that they would revisit the documents relating to gas pricing and then decide.

"The standing committee sought several papers on gas pricing, which the ministry did not provide. We will reconsider this decision, if NDA comes to power," says Narendra Taneja, BJP's energy cell's national convener.  

He said that various stakeholder have already met him and pointed out loopholes in the formula. Moily refused to comment on issues related to not providing the documents to standing committee. "all I want to say here is that the decision was taken in the cabinet and concerns of the stakeholders were duly considered," says the minister.

The existing APM price for gas in the country is US$ 4.21 per mmbtu, the new formula will raise the gas price to $8.3 per unit. The current price had been constant for five years and was linked with the crude oil prices. The new price will be revised every three months. Communist leader Gurudas Dasgupta and AAP's national convener Arvind Kejriwal are making these allegations that Moily gave favours to country's biggest oil player Reliance Industries by increasing the price of gas. The minister also indicated that there could be someone from his ministry supporting Dasgupta in this.

The opposition leaders believe that this formula is faulty on more than one occasion.

First to calculated the price, international benchmark of Japan's custom cleared crude oil is taken. Presently, Japan itself is not using this scale to formulate gas import contracts. The domestic market was not considered while fixing the gas price. More importantly, the contract of gas supplies at hubs using these benchmarks are based on net calorific value, but in India under existing rules it is based on gross calorific value.

This will again increase the price by additional 10%. Amid all these allegations and fights, it seems the gas players will have to wait till the new minister takes charge.