What gas is worth

Rangarajan panel suggests import parity pricing. But without settling cost sharing, can the sector move on?

The challenge for the power, fertiliser and other downstream gas sectors is that while they may have built up capacity, the supply of gas is faltering. After a good start, the gas economy in India now suffers from two problems — low supply and inadequate price for the produce. Private sector explorers claim that the low price is holding back the exploration of new fields with production potential.

The Rangarajan committee report on the sector is reported to have offered solutions to this string of problems. It has recommended linking price discovery for gas to a basket of international prices, for a period of five years. The committee is in favour of a deregulated pricing model for the sector thereon. Linking domestic prices with international average prices is expected to remove one of the major concerns of the explorers about their topline. In the complex world of natural resource pricing in India, it is, of course, difficult to predict whether gas prices will indeed be deregulated in five years, but there is no doubt that an automatic price-setting mechanism ought to be discovered in the meantime. Linking gas prices to import parity price is at par with the trend in the oil sector and has already been put in place for iron ore and gradually for the coal sector too. But this price model has two implications. If the government retains the power to link the prices, instead of a regulator, it will effectively remain the price setter for the sector. The oil ministry already sets the allocation formula for the sector and with the new formula it would minutely control the entire value-added chain for the sector. It is a short distance from here to under-recoveries and subsidies like in the oil sector. The corollary here is that the price formula will inevitably raise the cost of production sharply for power companies.

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