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Prime Minister Narendra Modi today met Oil Minister Dharmendra Pradhan for the second time in three days, apparently to hammer out an acceptable increase in natural gas prices that could be announced soon. After nearly five hours of discussion on issues facing energy sector on Friday, Modi again called a meeting today with Pradhan where Finance Minister Arun Jaitley also joined.

Sources said at the Friday meeting the gas price revision was flagged as one of the immediate decisions that the new government needs to take to revive investor interest in the stagnant oil and gas sector.

While the new government is keen to take an early decision on the issue, it may be looking at moderating the proposed increase - from current $ 4.2 per million British thermal unit to $ 8.4, they said adding a new rate may be announced as early as this week.

Oil and gas producers say the current $ 4.2 per million British thermal unit rate is not enough to help produce from new finds in deepsea, but a new formula that had been approved by the previous government will result in increase in electricity tariff, urea cost, CNG rates and piped cooking gas price.

Given that inflation is already high and recent rise in food prices in anticipation of below-normal monsoon will add to it, the new government is debating if gas rates should be revised now and add further to inflation, they said. Every dollar increase in gas price will lead to INR 1,370 per ton rise in urea production cost and 45 paise per unit increase in electricity tariff. Besides, it will lead to a minimum of INR 2.81 per kg increase in CNG price and INR 1.89 per standard cubic meter hike in piped cooking gas.

The new government, sources said, is mulling if the Rangarajan formula approved by the previous UPA government for pricing of all domestically produced natural gas, should be tweaked or certain modifications made in its implementation.
The Rangarajan formula calls for pricing rates at an average cost of importing liquefied natural gas (LNG) into India and rates prevailing on international hubs in US and UK as well as price of gas imported into Japan.

Sources said there is a thought that the high priced Japanese imports, which have no relevance to India, should be excluded from the formula to bring down the gas price from $ 8.4 as arrived at using Rangarajan formula, to about $ 7-7.5.

Another possibility, proposed two weeks ago, is to allow higher prices only on output that is in excess of current production; or to allow higher gas prices only for production from fields discovered under the New Exploration Licensing Policy like Reliance Industries-operated KG-D6 fields. This would mean state-owned ONGC, whose gas production comes from pre-NELP blocks, being kept out of price revision. If this option is accepted, the new rate will apply to only 15 per cent of the domestic production (basically only KG-D6 of RIL), sources said.

Source-On Request