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Oil Ministry asks cabinet to approve Rangarajan gas pricing formula till FY17

NEW DELHI: The oil ministry has proposed to the Cabinet to approve gas pricing formula recommended by the Rangarajan committee for less than four years as the ministry has already engaged another panel to devise "market-determined" long-term gas pricing strategy. The note for the Cabinet Committee on Economic Affairs (CCEA) has proposed new gas price between $6.77 and $10.84 per unit as calculated by different government departments after tweaking the Rangarajan formula, government sources said. Most of the country's natural gas is currently sold at $4.20 per unit. 

The Cabinet note reiterates the government's strategy to have a globally competitive gas pricing policy in the long run. "The road map for switchover to market-determined gas pricing at the end of the 12 {+t} {+h} Plan is being worked out separately by the Kelkar Committee and will be placed before the 
CCEA in due course," the note, reviewed by ET, said. 

The Kelkar committee is expected to submit its report to the government by September this year, government officials said. 
Oil minister Veerappa Moily had constituted a committee under chairmanship of Vijay Kelkar in March to suggest steps for enhancing domestic oil and gas production. Later, its scope was expanded to suggest market-based pricing formula for gas produced beyond March 2017. 

Government officials defended the oil ministry's move to fix gas price for less than four years citing the Rangarajan committee report. 

"The Rangarajan Committee said that its proposed pricing formula could be reviewed after five years with an aim to have a market-determined price for gas," said a government official with direct knowledge of the matter. 

Prime Minister 
Manmohan Singh constituted the Rangarajan panel last year on the recommendation of former oil minister Jaipal Reddy. According to the CCEA note, prices of all domestically produced gas will be raised from April 1 next year. The time coincides with the scheduled price revision for Reliance Industries-operated KG-D6 block's gas. "Price revision for Reliance's D6 gas is a contractual provision and the same is due on March 31, 2014. The current gas price of $4.20 was fixed by the empowered group of ministers for five years," an oil ministry official said. Reliance and its partners BP and Niko have been demanding that D6 gas price should be linked with rates at which India imports gas. Imported gas costs about $16-18 per unit in the spot market.