“Our Gas Pricing Is On Objective Considerations’

In the aftermath of the UPA’s controversial decision to hike gas prices, the role of C. Rangarajan—the chairman of the eponymous panel whose price formula has been adopted—has come in for criticism. In an email interview with Lola Nayar, Rangarajan defended his numbers. Excerpts:

Mr Rangarajan, your report has been criticised because the UPA’s gas price hike is seen as a corporate giveaway—largely to Reliance—before the elections.

We have made recommendations to overhaul the existing Production Sharing Contract (PSC) regime and provided a formula for gas pricing which we think is the most appropriate, taking into account the concerns of producers and consumers. We have taken a decision on gas pricing based on purely objective considerations. It is to be noted that price for natural gas in India based on the formula suggested by the committee for the quarter April-June 2013 comes to US $6.83 per mmbtu. What the price will be in April 2014 will depend on a number of factors, including the trends in the world market over the next eight to nine months.

Energy experts say sections of your report have been used selectively by the UPA.

The Cabinet has made only one modification in the price formula that we have presented in the report, namely replacing monthly price revision by quarterly price revision. But this change does not take away the essence.

Your report devises a price formula that does away with market discovery and instead reverts to administered price mechanism. The formula will also make domestic gas as expensive as imported gas.

The formula that we have suggested is not an administered price mechanism. The contract mandates the price to be determined at arms-length. Since gas-on-gas competition is not currently possible in India, we have suggested a mechanism which is market based. The Committee has not taken the import price. Tran­sportation and liquefaction costs have been taken out of the landed cost to arrive at the netback price. In the case of oil, import parity price has been given to producers.

Increased subsidy, more import of coal and increase in carbon emission through switch away from natural gas due to unaffordable price—are they all not going to adversely impact economic growth, investment and environment as a whole?

Gas is regarded as an efficient and environment-friendly fuel. The objective of the Committee’s report was to ensure that more investment flows into this sector, which would improve energy security and reduce dependence on imported fuels.

Your choice of Japan LNG, in particular, in the energy basket (to decide the gas price) has been criticised, as it is considered one of the world’s most energy expensive market.

As there is no such hub for East Asia, the netback price of Japanese gas imports was considered as a hypothetical balancing point for East Asia. This simulates the competitive wellhead price that Indian producers can expect from the world market. The weights used for averaging are the respective volumes of gas traded. The weight of Japan LNG in determining the final price is very small. Calculations indicate that the weight of Japan netback is less than three per cent.

Why have you linked the gas price to LNG netback (price less the cost of delivering it) instead of dry gas netback?

It is true that dry gas has lower calorific value than liquefied wet gas, and this could result in the latter being priced higher in volumetric terms (BCM). Conscious of this, on technical advice the committee adopted a formula in which prices are equalised for calorific value (in MMBTU).