India raises gas price to $5.61 per unit, deregulates diesel

New Delhi: Taking major decisions impacting the hydrocarbons sector, India's federal cabinet Saturday made the long awaited revision in domestic natural gas prices, deregulated diesel and remodified the scheme to give direct cash to consumers on subsidy for cooking gas.

The cabinet also approved other projects related to infrastructure, including a metro rail project in Ahmedabad, highway projects worth Rs.1,476.56 crore, as well as a productivity linked bonus for railway employees.

In what could be seen as a setback for private hydrocarbon explorers, the government said natural gas prices were being revised to $5.61 per unit as opposed to the industries demand for atleast doubling it to a little over $8 per unit.

Speaking to reporters after the cabinet meet, Finance Minister Arun Jaitley said: "The original natural gas price was $4.2 per unit; Rangarajan Committee has followed a particular criteria and announced a price of $8.4 per unit, which was to be implemented from April 1, 2014, which implementation was halted by the Election Commission so that the new government can take a view on the matter."

"We reviewed the entire criteria. We looked at the various hubs which has been considered. We also looked at the various hubs which has been ignored. The cabinet approved the report of Secretaries Committee. The price now fixed is $5.61 per unit," he added.

"As per the formulation approved by the CCEA today, upward revision in gas prices will be approximately 75 percent less as compared to the price arrived at using Rangarajan formula," said the Cabinet Committee on Economic Affairs release.

Regarding the new price applying to gas from the Reliance Industries' (RIL) fields in the eastern offshore, the statement said that as the matter was under arbitration, RIL would be paid the earlier price of $4.2 per unit till the shortfall quantity of gas is made good.

The arbitration concerns the penalty imposed by the oil ministry on the company for failing to meet output targets from RIL-led consortium's D-1 and D-3 fields in the KG-D6 eastern offshore block to the extent of 1.9 trillion cubic feet of gas.

Announcing the diesel price deregulation, Jaitley said: "Price of diesel will be linked to the market, and therefore, depending on whatever is the cost involved, is the element that consumers will have to pay."

"Just like petrol prices, diesel cost will now be governed by market forces. The diesel prices were being increased by 50 paise or so over the last few months. The prices should come down as the global crude oil prices have dropped substantially in recent times," he added.

The cabinet also decided to relaunch the Modified Direct Benefit Transfer Scheme in LPG (cooking gas) in 54 districts from mid-November and in the rest of country from Jan 1, 2015.

"The cabinet has revisited the scheme design and processes and after thorough review, it has approved the modified DBTL," the statement said.

Jaitley said that "in addition to the Aadhar platform, all those with bank accounts will get LPG subsidy to their accounts directly".

Indian industry welcomed the diesel price decontrol as a highly progressive move.

"The price of fuel products such as diesel should reflect the true market value and this would also encourage all users to economise on their diesel consumption and hence aligns with the objective of promoting environmentally sustainable growth," industry chamber FICCI president Sidharth Birla said in a statement.