Sunday, 19 October 2014 | PNS | New Delhi
Literally making the most of an ideal fiscal situation when inflation is at a five-year low and crude oil prices have fallen to $83 per barrel, the Government on Saturday deregulated diesel prices and hiked natural gas price from the existing $4.2 per mmBtu to $5.61 per mmBtu. The increased gas price regime will come into effect from November 1.
While the immediate effect of diesel prices getting deregulated resulted in the ‘aam aadmi’ fuel getting cheaper by Rs3.37 a litre from Saturday midnight, the impact of the hike in gas price would be seen in the long run as it will increase costs of electricity. Gradually the expenses of running power stations and fertiliser plants will go up. This, in turn, will have a spiralling impact on inflation.
Though there would be an increase in CNG prices, industry sources told The Pioneer that as the new gas price regime will be applicable only from November 1, 2014, calculations will be made to decide the quantum of hike.
Every dollar increase in gas price will lead to a Rs1,370 per tonne rise in urea production cost and a 45 paise per unit increase in electricity tariff (for just the 7 per cent of the nation’s power generation capacity based on gas).The Union Cabinet also approved a modified Direct Benefit Transfer for LPG scheme (DBTL), which will be re-launched in 54 districts from mid-November and in rest of country from January 1, 2015.
Announcing these decisions soon after the Cabinet meeting, which was chaired by Prime Minister Narendra Modi on Saturday evening, Finance Minister Arun Jaitley said that deregulation of diesel prices has happened at a time when global oil prices are at their lowest and therefore diesel prices too have been cut by Rs 3.37 per litre. He, in fact, asked Indian Oil Corporation Chairman B Ashok, who was also present in the media briefing, to announce the diesel price cut.
This is the first reduction in diesel rates in over five years. Diesel rates were last cut on January 29, 2009 when they were reduced by Rs 2 a litre to Rs 30.86.
Diesel prices were last raised by 50 paisa on September 1 and they have cumulatively risen by Rs 11.81 per litre in 19 instalments since January 2013, when the then UPA Government had decided to hike the common man’s fuel price by 50 paise every month till the time the subsidy burden got reduced.Due to this, petrol prices have moved in tandem with global cost and retail rates being reduced on five occasions since August on falling oil rates. Petrol prices have cumulative come down by close to Rs 7 per litre in last two-and-half months.
Also on diesel, the entire under-recovery or loss has been eliminated and oil firms started making profit from second half of September. The over-recovery or profit has since reached Rs 3.56 per litre.Deregulation would mean that the Government and State-owned explorers including Oil and Natural Gas Corp (ONGC) are no longer subsidising diesel.
Meanwhile by hiking the natural gas price to $5.61 per mmBtu from the existing $4.2 per mmBtu, the Cabinet has modified the Rangarajan formula which had been approved by the previous UPA Government.The Rangarajan formula had suggested hiking gas price to $8.4 per mmBtu (which was to be implemented by April 1, 2014), thus doubling it. However Jaitley informed mediapersons that the NDA Government had set up a Committee of Secretaries, on whose recommendations the Cabinet okayed the price of $5.61 per mmBtu.
“The price was cleared by the Cabinet, keeping in mind that there is sufficient incentive for drilling and at the same time, it is not burdensome to the customer,” the Finance Minister said.The new formula will be effective from November 1 and rates will be revised every six months with the next revision being on April 1.
Mukesh Ambani-led Reliance Industries Ltd (RIL), however, will continue to get the existing rate of $4.2 per mmBtu till it makes up for shortfall in output from KG-D6 block. Consumers though will pay the revised increased price. RIL will get the higher rates if it is legally able to prove that it did not deliberately cut production and output fall was a result of geological reasons as it claims.
Jaitley had budgeted Rs 63,400 crore for petroleum subsidies which was 25 per cent lower than previous fiscal. But unlike past, the subsidy bill is unlikely to overshoot the budgeted amount due to fall in oil rates.
The salient feature of the modified DBTL scheme is that the subsidy per domestic subsidised cylinder shall be fixed. Also all LPG consumers who join the modified DBTL scheme in future can receive LPG cash subsidy either by linking Aadhaar number to the LPG and bank database as the primary option, or directly in their bank accounts without necessarily linking it with the use of Aadhaar as the secondary option.
This will ensure that no consumer is denied LPG subsidy for want of Aadhaar number.All LPG consumers who had already joined the scheme solely based on Aadhaar number will start getting subsidy in their Aadhaar linked bank accounts after scheme is launched.LPG consumers will get a grace period of three months during which consumers who have joined the scheme will get subsidy in bank account and others will continue to get cylinders at subsidised price.
Those consumers, who don’t join the scheme after the three-month grace period, will be eligible for an additional subsidy Parking Period of three months. During this period, LPG cylinders to all such consumers will be supplied at market price, but the subsidy due on all LPG supplies will be credited to the bank account as soon as consumer joins the scheme in this period and as per entitlement.
The Cabinet also approved the framework of an inter-governmental MoU for setting up an $85.21 million joint venture firm for equipping two fully-constructed berths in Iran’s Chahbahar port.Chahbahar port is located in Sistan-Baluchistan Province on Iran’s south-eastern coast and is of great strategic utility for India. It lies outside the Persian Gulf and is easily accessed from India’s western coast.
India’s presence at the Chahbahar port would give it a sea-land access route into Afghanistan through Iran’s eastern borders, an official statement said.As per the framework, approved in the Cabinet on Saturday, an Indian joint venture company would lease two fully constructed berths in Chahbahar port’s Phase-I project for a period of ten years, which could be renewed by “mutual agreement”.
“The JV company will invest $85.21 million for equipping the two berths within 12 months as a container terminal and the second as a multi-purpose cargo terminal,” it said.The Indian side will transfer ownership of the equipment to be provided through the investment to Iran’s port and Maritime Organisation (P&MO) without any payment at the end of the tenth year.
“The Indian side can form a JV that could include one or more Iranian companies subject to the approval of the P&MO,” it said.
TOUGH CALLS
- While fixing the natural gas price at $5.61 per mmBtu, the Cabinet has modified the Rangarajan formula approved by the previous UPA Government
- The Rangarajan formula had suggested hiking gas price to $8.4 per mmBtu from existing $4.2 per mmBtu
- Mukesh Ambani-led RIL, however, will continue to get the existing rate of $4.2 per mmBtu till it makes up for shortfall in output from KG-D6 block
- The salient feature of the modified DBTL scheme is that the subsidy per domestic subsidised cylinder shall be fixed
- Also all LPG consumers who join the modified DBTL scheme in future can receive LPG cash subsidy either by linking Aadhaar number or directly in their bank accounts without necessarily linking it with Aadhaar
- The Cabinet also approved the framework of an inter-governmental MoU for setting up an $85.21 million joint venture firm for equipping two fully-constructed berths in Iran’s Chahbahar port
