Gas price: Govt to address concerns before effecting hike

Days after the government nearly doubled natural gas price, Finance Minister P Chidambaram said concerns of power and fertiliser sector will be addressed before the increase is implemented in April 2014.

On June 27, the Cabinet approved a new formula that uses weighted average of the price of LNG into India and average price at major gas hubs.

According to the formula, the price of gas in 2014 will come to $8-8.2 per million British thermal unit as opposed to $4.2 currently.

The hike in price will lead to increase in cost of generating electricity as well as urea cost.

Chidambaram said only the price payable to producers has been fixed now and input rates for power and fertiliser have not been decided. "There are concerns by the power sector and the fertiliser sector and we will certainly address that issue," he told PTI in an interview in New Delhi.

Gas-based power plants represented a very small fraction of the total power capacity, he said adding the Oil Ministry has asked

ministeries of power and fertiliser to indicate the affordable gas price.

A day after India raising gas price, China hiked price of gas supplied to industries by over 15 per cent to $8.9.

China's National Development and Reform Commission on June 28 announced that price for non-residential gas users would hiked by by 15.4 per cent to Yuan 1.95 per cubic metre (32 cents/cubic metres) or about $8.90 per million British thermal unit.

Barclays Capital Inc in a research note said the new rates will be effective July 10.

In India, concerns have been raised about the impact of the gas price increase on cost of power generation as well as urea cost.

Bank of America Merrill Lynch said in a report said the $2.2 billion incremental revenue that the government will get at higher price by way of higher taxes and profit share could be used to subsidise gas supply to the core sector.

Oil Minister M Veerappa Moily on the other hand says the move will help bring to production over 3 Trillion cubic feet of gas reserves that had been declared economically unviable at current rates of $4.2.