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A group of ministers has recommended a Rs 350 per thousand cubic metres increase in domestic natural gas prices for the general consumer from Rs 2,850 to Rs 3,200, a rise of 12.28 per cent.
At its meeting in New Delhi on Wednesday, the group also suggested increasing the Hazira-Bijapur-Jagdishpur gas pipeline transportation charges by Rs 10 per mcm from Rs 1,150 to Rs 1,160.
Effectively, gas prices for the general consumer could rise by Rs 360 per mcm.
The group's recommendations would be sent to Cabinet for approval, K C Pant, chairman of the ministerial group, told newsmen after the meeting.
The revised prices, which will be applicable for natural gas produced by state-owned Oil and Natural Gas Corporation and Oil India Limited from current fields, will remain static for the next six months.
The two companies, however, will be allowed to sell gas from joint-venture fields like Tapti at market-determined prices.
The ministers decided that in the meantime a tariff committee would be set up to study the cost structure of ONGC and OIL for natural gas, and suggest a reasonable price till complete deregulation of gas prices.
The committee will be asked to submit its report within six months.
The group's recommendations, if accepted by the Cabinet, are expected to result in an extra yearly Rs 1,000 crore (Rs 10 billion) revenue for ONGC, which has been subsidising gas produced by private firms.
At present, natural gas produced by ONGC and OIL is capped at Rs 2,850 per mcm.
For gas produced from joint-venture fields like Ravva, Cairn Energy is paid the international price while ONGC sells the same gas to its customers at the capped price, providing a Rs 1,300 crore (Rs 13 billion) subsidy annually.
"The current price of Rs 2,850 per mcm, which translated into Rs 2,150 per mcm for us after paying the joint-venture price differential and contributing to the gas pool account, did not justify spending on improving production from the existing fields," an ONGC executive said.
The impact of the increased transportation cost is expected to result in an increased revenue of Rs 10-12 crore (Rs 100-120 million) for Gail (India) Ltd.
The increased prices will hit the fertiliser and power sectors since these two industries consume 80 per cent of the natural gas supplied through the HBJ pipeline.
Other industries, including steel, consume the balance 20 per cent.
The gas pool account will be limited to Rs 100 crore (Rs 1 billion) per annum or the actual compensation for concessional gas prices in the Northeast and other purposes, whichever is less. Last year ONGC had paid Rs 250 crore (Rs 2.50 billion) to the gas pool account.
While natural gas produced from all joint-venture fields will attract market-determined prices, the system will not apply to the 1 million standard cubic metres per day of gas produced at the Cairn Energy-operated Ravva field as it will have a severe impact on power consumers in Andhra Pradesh.
According to sources, the ministerial group has suggested that for new fields and additional production of gas over and above the current level of production by ONGC and OIL, the price be de-linked from the administered price mechanism and be market determined.
Earlier, the petroleum ministry wanted natural gas prices to be raised to Rs 3,850 per mcm but the power and fertiliser ministries were not agreeable to that.
The ministerial group's recommended price is lower than the Rs 3,250-3,500 per mcm band suggested by the committee of secretaries, which went into the issue.
It also set transportation charges lower than the petroleum ministry's suggestion for an increase of Rs 3.35 for every Rs 100 per mcm increase in gas price.
The impact