29.6.13

Government gets gutsy


The government has approved doubling the price of natural gas from the next fiscal year, giving a shot in the arm for Reliance Industries and ONGC, and encouraging a surge in investments in exploration, although cost of electricity, fertilisers and CNG will rise. After dithering over the decision for many months, the Cabinet Committee on Economic Affairs (CCEA) finally overruled stiff opposition from gas customers and took the courageous decision, which analysts said will quickly raise India’s exploitable reserves of gas as higher prices will make more discoveries commercially viable. Government and industry officials said prices may also fall in the medium term as they are linked to international benchmarks, which move in both directions.


With the new formula, based on the Rangarajan Committee’s report, prices are estimated to rise to about $8.4 per unit from April. The government has not given details of pricing, but analysts have estimated the price would rise to $10 per unit and even higher in the following years — rising sharply from $4.2 per unit that Reliance is currently allowed to charge. Officials said that for the Cabinet, prospects of higher output, which would still be cheaper than the current LNG prices, and the need to attract more risk capital in Indian basins outweighed stiff opposition from the power and fertiliser ministries as well as Leftist politicians. The new pricing formula would be valid for five years and the price would be revised every quarter.

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