Power tariff to go up

Power tariff to go up
PTI
NEW DELHI, MAY 19
In a far-reaching decision, the government today raised natural gas prices by more than double to USD 4.20 per mmBtu, a move that will result in a rise in power and fertilizer production cost and rise in CNG rates.
The Cabinet hiked price of gas sold to power, fertilizer and city gas projects from Rs 3,200 per thousand cubic metres (USD 1.79 per million British thermal unit) to Rs 6,818 per thousand cubic metres (USD 3.818 per mmBtu), Information and Broadcasting Minister Ambika Soni said.
After adding royalty, the price for user industries would be Rs 7,500 or USD 4.2 per mmBtu, at par with the rate at which Reliance sells its gas.
Apurva Chandra, Joint Secretary in Oil Ministry, said the decision that would come into effect once the decision is notified in the next few days, would result in a rise in fertilizer production cost, power generation tariff and CNG price.
Fertilizer prices will not be increased as the government subsidises the sector. But today’s decision would result in rise in fertiliser subsidy by Rs 3,500 crore. “The Government stands to gain (in royalty) an amount larger than this subsidy payout,” he said adding the impact to the government would be positive.
The new gas price on an overall basis would result in 2.75 per cent increase in power tariff and up to 20 per cent hike in price of compressed natural gas (CNG) sold to automobiles in cities like Delhi. CNG in Delhi currently costs Rs 21.90 per kg.
State-run ONGC and OIL produce 54.32 million cubic metres per day or about 40 per cent of total gas produced in the country, from fields given to them on nomination basis. This gas is sold on government controlled rates – about 50 mmscmd to power and fertilizer units and city gas projects at USD 1.79 per mmBtu and rest to other industries at USD 4.75 per mmBtu.
“ONGC and OIL have been making substantial losses in their gas business. The (current) low prices of gas have discouraged national oil companies from making investment (in rising dwindling output). Therefore, it became essential to increase the price of gas,” Soni said.
On top of the USD 4.2 per mmBtu, state gas transportation and marketing firm GAIL India would be allowed to charge Rs 200 per thousand cubic metres or 11.2 cents per mmBtu as marketing margin. Over and above this would be the taxes and other levies and pipeline transportation charges.
The move that will help the state-run firms break-even in gas business, Chandra said adding ONGC would get incremental revenue of Rs 6000-7000 crore and OIL Rs 700-800 crore.
The new price will be for period upto March 31, 2014, the time till when Reliance Industries has been allowed to charge USD 4.2 per mmBtu price of gas from its KG-D6 fields.
Gas price in the North-East will be 40 per cent of the national price, Soni said.
Chandra said GAIL was not allowed to charge marketing margin on gas sold to power, fertilizer and city gas but after today’s decision it will get Rs 200 per thousand cubic metres.
The price of USD 4.75 per mmBtu for consumers in other sectors would continue.
The government controls rates of gas produced by ONGC and OIL from fields given to them on nomination basis (called APM gas). APM gas price were last revised in 2005 to Rs 3,200 per thousand cubic metres (USD 1.79 per mmBtu).
ONGC, in 2008-09, lost Rs 4,745 crore in revenues on selling 17.71 billion cubic metres of gas at the government fixed rate.
The oil ministry had previously wanted to raise the gas price in stages to USD 4.2 per mmBtu. It wanted rates paid to ONGC and OIL to be immediately hiked to Rs 4,142 per thousand cubic metres (USD 2.32 per mmBtu). The consumer price at this would have been 10 per cent higher at USD 2.55 per mmBtu.
Thereafter, in three more installments the rates were to be hiked to USD 4.2 per mmBtu.
However, on the insistence of the finance ministry, the oil ministry withdrew the proposal and moved a fresh one seeking to raise the price of the gas under APM to Rs 7,500 per thousand cubic metres or USD 4.2 per mmBtu, sources said.
The finance ministry wanted the hike to happen in one stage and not in stages, sources said.
About 39 per cent of the nation’s 140 million standard cubic metres a day of gas output is sold at administered rate.
A hike in rates of these is an attempt to reduce distortions in a market with more than a dozen prices.
The government has set USD 4.2 per mmBtu as the sale price of gas from Reliance Industries’ eastern offshore KG-D6 fields, while the gas from BG Group-operated Panna/Mukta Tapti fields is sold at USD 5.73 per mmBtu.
Sources said 54.32 mmscmd gas produced by ONGC and OIL is sold at APM rates. RIL produces about 64 mmscmd of gas from KG-D6.
“The APM production from nominated blocks of national oil companies is dwindling and is being supplied only to old consumers. Any new customer wanting to set up capacities or expand cannot get APM supplies. This discourages new entrants, as they have to compete with APM customers,” Soni said.
She said the new price was substantially lesser than the price of alternative fuels like naphtha and fuel oil and the customers of gas would find it viable to consume gas at this price.
“It would impact the cost of power only marginally,” she said. “The selling price of fertilizer is likely to be unaffected.”