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Price hike of natural gas will hit common man hard

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The 'Gas-Pricing Conundrum' has been placed on the anvil for some time now. The rising import prices of the petroleum products and the declining trend in the domestic production of natural gas were the key factors that insinuated the government to think of a new policy.

The expert group appointed for job, the Rangarajan Committee came up with a new formula to calculate the domestic price of natural gas in India which accounts to almost a two-fold increase from the current price.

This was argued, ostensibly to bolster the domestic producers and thereby eventually leading to increased domestic production and to attract more foreign investments and hence to a gradual decrease in the prices.

It is a proven fact that the procedure to determine the price of any commodity is to subject it to stiff competition with other manufacturers in the free market. But at present this stage is only nascent in India.

The lack of gas-to-gas free market competition in India forced the committee to consider the prices prevailing in the global markets.

The two main aspects considered for coming up with the formula were :(i)the netback price for Indian Liquefied Natural Gas (LNG) at the wellhead sources in countries exporting to India. As there were many, the average of all such prices were taken (ii)the average of netback prices prevailing at the trading points of transactions at global hubs or balancing points of major markets of gas across different continents.

The hubs considered for this purpose were the Henry Hub in USA, the National Balancing Point at UK and prices at Japan.

In order to take in all the factors the average of the prices from (i) and (ii) were considered which amounted to 6.835$mmbtu (million metric British thermal unit) from the current 4.2$mmbtu. This was again modified to 8.4$mmbtu for reasons unknown.

The formula undoubtedly will prove costly to the main consumers of natural gas, the Fertilizer and Chemical Industries besides for power consumption, CNG for vehicles etc. But here the dubious nature of the policy is fully exposed.

Most of the industries above are State owned and runned and therefore this increase in price will have to be ultimately met with increase in subsidies to these industries to protect them or else they may decrease or stop the production altogether thereby nullifying any profit to the government.

This is because it is estimated that for every 1$ rise in the prices, the industries face a loss of thousands of crores. Their option to setup establishments in other nations is also to be seen warily. But in stark contrast to these the private manufacturers are bestowed with a windfall of profits from this policy.

The Krishna-Godavari (KG) basin is the main source for Indian natural gas. The recent declining trend in production here has attributed to some 'technical difficulties'. But it is only common sense that the private manufactures here reneged on its promise to the government by gold plating the investment and controlling production to instigate a hike in the price.

Notwithstanding a recent hike in the prices in the past the only major investment it could attract was that of Britain's BP (earlier British Petroleum). So there is no guarantee that a furthermore increase in the price will attract any major investments or give a fillip to domestic production.

Taking into all these factors it is clear and obvious that this increase in prices will have to be eventually met by the common tax-payers. Because no matter what a common man's dependence on natural gas products for cooking, transportation, power, agricultural uses etc will remain unstinting due to lack of any other amenable options because most of their livelihood are dependent on it.

Unless the government intervenes and calls for a review and a complete overhaul of the structure, the common man is sure to suffer extremely.

A comprehensive view is required in this aspect to reorganize the whole system of Production Sharing Contracts (PSCs).

Steps should be taken to prevent the manufacturers from gold plating investments and controlling production and thus ensuring the government its long due profit and its share in the market.

Also acute measures to ensure that they do not renege on its promise and continue the production at the agreed upon rise is a must.

Only then can the government prove its inherent nature of "For the People, By the People and To the People" theme.

It is high time to spurn the common policy of harassing the common tax-payers. This is because in a democratic nation like ours, a tax payer is the power center whose toil and sweat is the foundation of the very nation.

-Balasubramanyan.R.Menon

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