Kirit Parikh panel recommendations on Gas Pricing

In Context

• Recently, the Cabinet Committee on Economic Affairs (CCEA)  approved the Kirit Parikh panel recommendations on natural gas pricing.
  • The Kirit Parikh committee was constituted in 2022 to review the existing pricing formula for domestically produced natural gas in India.

More about the Committee

• Composition : 
  • The committee is headed by energy expert Kirit Parikh, and includes members from the fertiliser ministry, gas producers and buyers.
• Committee Mandate:
  • The committee was tasked with suggesting a “fair price to the end-consumer” while ensuring a “market-oriented, transparent and reliable pricing regime for India’s long-term vision for ensuring a gas-based economy”.
  • The mandate was to suggest a regime that would help raise domestic production to help meet the goal of 15% of energy coming from gas by 2030. 
  • And at the same time, provide fair prices to consumers.

Committee recommendations 

• Fixed band of pricing:
  • A fixed band of pricing for gas from legacy fields, which makes up for two-thirds of all natural gas produced in the country.This would ensure 
    • A predictable pricing regime for producers 
    • At the same time moderate prices of CNG and piped cooking gas which has shot up by 70% since last year on the back of a surge in input cost.
• Linking gas price:
  • The panel has suggested linking the price of gas produced by state-owned firms from fields given to them on a nomination basis to imported crude oil prices rather than benchmarking them to gas rates in international markets
  • State producers Oil and Natural Gas Corporation (ONGC) and Oil India Ltd (OIL) will be paid a price linked to imported oil but it will have a minimum or floor price of $4 per million British thermal unit and a cap or ceiling price of $6.5.
    • This compares to the current rate of $8.57 derived from a formula linked to the price prevailing in gas-surplus nations.
• The ceiling rate:
  • The ceiling rate for this gas from legacy or old fields, called APM gas, will be increased by $0.5 per mmBtu annually.
• Pricing formulae:
  • The panel was in favour of not tinkering with the existing pricing formula for fields in difficult geology such as KG-D6 of Reliance Industries and bp plc.
  • Currently, fields in deepsea or in high-temperature, high-pressure zones are governed by a different formula that includes an element of imported LNG cost but the same is also subject to a ceiling. 
    • The ceiling for these fields currently is $12.46.
• Natural gas in the one-nation-one-tax regime:
  • The panel also suggested including natural gas in the one-nation-one-tax regime of GST by subsuming excise duty charged by the central government and varying rates of VAT levied by state governments.
• Concern of loss of revenue:
  • To address state concern of loss of revenue, the panel was in favour of setting up a mechanism similar to the compensation cess regime that made good for any revenue loss that states incurred by way of giving their right to levy VAT and other taxes on goods and services in first five years of implementation of GST regime from July 1, 2017.
  • Also, the panel was in favour of moderation in rates of excise duty.
• The city gas:
  • The city gas will continue to get top priority in the allocation of APM gas. The sector will be in the ‘no-cut’ category, meaning supplies to other consumers will be cut first in case of a decline in production.
    • Gas from legacy fields is sold to city gas distributors who had to raise rates of CNG and piped cooking gas by over 70% after prices went up from $2.90 per million British thermal unit till March to $6.10 in April and further to $8.57 last month, reflecting a surge in global rates. 
    • This rise in rates, which narrowed the gap between CNG and polluting diesel, prompted the review.

Way ahead

• Ideally, pricing should be determined by the market. However, if a country wishes to promote socially desirable consumption then it may introduce some constraints. 
• So, this policy is designed to make sure that people have easier access to gas.

Source: TH