Chidambaram defends gas price hike decision

Finance minister P Chidambaram today defended the government's decision to double the unit price of natural gas produced in the country from $4.2 per mmBtu to around $8.5 per mmBtu from the next financial year, saying it was necessary to avert a sharp decline in gas production in the country.

The Cabinet Committee on Economic Affairs (CCEA) on Thursday gave its approval for fixation of price of domestic natural gas according to the recommendations of the committee constituted under the chairmanship of C Rangarajan on the production sharing contract (PSC) mechanism in the petroleum industry.

The implementation of the committee's recommendations could raise domestic gas prices to $8.4-8.5 per million British thermal units (mmBtu) from the current $4.2 mmBtu, beginning 1 April 2014.

The present gas pricing policy under the New Exploration Licensing Policy (NELP), approved by the government in April 2009, is due for revision in April 2014.

Chidambaram echoed petroleum minister Veerappa Moily's observations, saying that domestic gas production would go up if investments were made; currently no investment was being made in gas production.

Earlier this month, Moily had argued for a hike in gas prices in order to make exploration attractive to petroleum companies.

Chidambaram's comments come in the wake of wide criticism over the persistent demand of Reliance Industries for a hike in gas prices on the basis of its huge investments in the offshore KG-D6 block in the east coast of India.

The decline in domestic production has resulted in a spurt in import of LNG, the finance minister, pointed out.

RIL's gas production from the KG-D6 block declined dramatically over the past few years, resulting a huge supply gap that pushed up imports manifold.

Chidambaram asserted that the government was not ko-towing to anyone by raising gas prices, instead, he said, it was only serving the country's economic interests.

"We are not being influenced by anyone....We are influenced by the economic reality to produce more gas," he said.

Chidambaram also said the government will issue an executive order to immediately set up a coal regulator, on the lines of PFRDA and SEBI.

PFRDA continues to be under the executive order, while SEBI was later changed to a statutory body.

The union cabinet headed by prime minister Manmohan Singh on Thursday gave its go-ahead for the setting up of an independent regulator for the coal sector when the Par;iament was not in session.

According to the normal procedure, the Coal Regulatory Authority Bill, 2013 needs to be placed before Parliament before it becomes law.

The draft bill was submitted to the cabinet panel for consideration on 10 May 2012, but the panel decided to refer it to a group of ministers headed by finance minister Chidambaram. The GoM gave its go-ahead for the legislation on 30 May.