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Official: India approves doubling of natural gas price

BY MUKESH JAGOTA & SAURABH CHATURVEDI

NEW DELHI -- India' s cabinet on Thursday agreed to double natural gas prices to industrial and retail consumers to help fund investment in exploration and reverse declining domestic output, which would ultimately help in reducing the hefty energy import bill.

The price boost is also expected to help improve power generation and support efforts to revive India' s flagging gross domestic product growth which sank to a decade' s low of 5% in the financial year ended March 2013.

The cabinet allowed natural gas prices to rise to $8.4 per million British thermal unit, the first such revision in three years, following recommendations by the prime minister' s economic advisory panel, according to two senior oil ministry officials, who did not want to be identified.

The price increase will be effective from the next financial year beginning April 1, 2014, they added. This is up from earlier plans to raise natural gas prices to $6.775 per mBtu from about $4.20 now.

The change comes in the wake of state companies--Oil & Natural Gas Corp. (500312.BY) and Oil India Ltd.(533106.BY)--agreeing Tuesday to pay $2.48 billion for a 10% stake in a huge Mozambique gas field, with an eye on future liquefied natural gas deliveries to India to meet its energy needs.

Domestic output of natural gas has been declining for the last two years, with few private companies venturing into the sector because of low state-fixed prices. This has crimped power generation and hurt fertilizer units, which need the fuel as a raw material.

About 9% of India' s electricity generation capacity is based on natural gas.

The boost to revenues would benefit both state-owned ONGC and private operators such as Reliance Industries Ltd.(500325.BY), which operates the country' s biggest gas field, located in the Krishna Godavri basin on the east coast.

India currently imports about three-fourths of its energy needs.

Experts say the policy reform will likely be strongly opposed by opposition political parties because it will inevitably lead to higher electricity prices and costlier fertilizer for farmers.

According to a new pricing policy proposed by the prime minister' s panel, prices of natural gas would be revised every quarter until March 2017. Thereafter, the government would dismantle all controls on pricing of the fuel.

The oil ministry expects that the rise in gas prices will not only attract private-sector investments but also strengthen state-run ONGC' s ability to invest in new projects.

Every dollar increase in gas prices would result in $128.5 million in additional royalties and profits for the government, according to oil ministry officials.

India Ratings & Research, a ratings agency, said in a report that the gas price increase will raise costs for power utilities by about 78 billion rupees ($1.3 billion) annually for power utilities, potentially pushing up electricity tariffs by more than 50%.

"The Indian power industry, a major consumer of natural gas, mostly operates on the principle of pass-through of fuel costs to consumers," the report underscored.

Dow Jones Newswires

06/27/2013

 

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