Cabinet paves way for higher gas prices

Tue, 24 Dec Pre-Open

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Recently, the Cabinet Committee of Economic Affairs (CCEA) approved a proposal that would allow Reliance Industries Ltd (RIL) to double the gas price from next April. However, there was a caveat in the said approval. RIL will have to provide a bank guarantee of US$ 135 m every quarter. And if it is proven that RIL unethically hoarded gas and suppressed production for private benefits the bank guarantee will be en-cashed.

On the face of it this seems to be an end to a logjam as the petroleum ministry was of the view that new gas price should not come into effect unless RIL makes up for the lost output. Or unless it is proven that geological complexities impacted the output and RIL had no role in curbing the same. Also, the bank guarantee clause appears reasonable because if RIL is proven guilty it will be robbed of the benefits.

However, this appears to be a bail out. We all know how long it takes for judicial matters to resolve in India. Hence, proving that RIL hoarded gas can take ages. Also, it is known how pre-qualification norms were diluted to benefit RIL. And no concrete action was taken against the company despite breaching the production sharing contract (PSC).

Also, the rationale for increasing the well head price does not go well with us. It is believed that higher prices are good for India's energy security as it will attract more investment in exploration & production. However, this does not take into account how higher gas prices will burden consumers at the expense of a corporate organization. Increasing gas prices will increase the power cost where gas is used as a source of input. Other industries that will be adversely impacted are fertilizers, cement, steel etc. The increased input cost will ultimately burden the end consumer. Thus, the problem of gas scarcity will soon be coupled with higher gas prices. Needless to say, it is the end consumer who will suffer.

The fact and the matter is that gas is a natural resource. It belongs to the citizens of this country. And it is the Government's responsibility to see to it that the distribution of this natural resource happens evenly. We doubt if the Government can ever prove if RIL suppressed the production artificially or there were indeed geological issues that hampered the output. All we know is that the company has failed in fulfilling its commitment towards supplying gas; the very basis on which it was awarded the contract. Also, the mechanism on which the natural gas prices have been raised has been a matter of great debate and there are diverse views over it. In this entire fuss, the fact and the matter is, it is the end consumer which has suffered the most.