ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Subsidising Producers’ Profits?

Natural Gas Price Hike

The government, on the basis of a very questionable methodology, has doubled the price payable to natural gas producers. Through this decision as with a similar one in 2009, the government has compromised economic reasoning at the altar of crony capitalism and political expediency. In the absence of a homogeneous gas market which throws up a market price, the only option should have been for an independent, professional and quasi-judicial regulator to compute effi ciency-based costs and determine the price on the basis of a reasonable return. Instead, a Group of Ministers has taken a decision which could transfer up to Rs 26,000 crore a year to producers, especially one private company.

The government, on the basis of a very questionable methodology, has doubled the price payable to natural gas producers. Through this decision as with a similar one in 2009, the government has compromised economic reasoning at the altar of crony capitalism and political expediency. In the absence of a homogeneous gas market which throws up a market price, the only option should have been for an independent, professional and quasi-judicial regulator to compute efficiency-based costs and determine the price on the basis of a reasonable return. Instead, a Group of Ministers has taken a decision which could transfer up to Rs 26,000 crore a year to producers, especially one private company.

On 27 June, the Cabinet Committee on Economic Affairs (CCEA) decided to increase the price of natural gas from the Krishna Godavari (KG) Basin and other areas on the basis of Rangarajan Committee’s recommendations from the existing level of $4.20 per million British thermal units (MMBTU) to $8.4 per MMBTU, effective from 1 April 2014.

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