After gas price hike, govt offers cushion - mydigitalfc.com

In a bid to partially offset the adverse impact of doubling gas prices to $8.4 per mmBtu, the UPA government may offer some relief to both fertiliser and power companies. A part of the enhanced fuel bill, worth Rs 26,400 crore annually, may be borne by the government, and PSU oil companies will cross-subsidise these costs for companies in the fertiliser and power sectors. Finance minister P Chidambaram gave a firm hint to this effect on Friday, when he was briefing journalists on the finer nuances of the gas price decision taken by the cabinet committee on economic affairs (CCEA) on Thursday. Chidambaram said the government would take a decision over the next few months on the possible measures to negate the impact of high gas prices on the fertiliser and power companies. "If required we may tweak power rates or provide higher fertiliser subsidies," he said. As hinted by Chidambaram, it could be in the form of higher subsidy for the fertiliser companies and selling of natural gas to power companies at less than $8.4 per mmBtu. The additional burden of Rs 26,400 crore may be partially made good from higher taxes, royalties and dividends paid by the PSU oil firms and profits shared by companies like Reliance Industries (RIL). Chidambaram assured that the government was committed to keeping fertilisers price and power tariff "at affordable levels" notwithstanding the revision in gas price. While power minister Jyotiraditya Scindia had pushed for $5 per mmBtu, fertiliser minister Srikant Jena had opposed the gas price revision. The finance minister defended the government decision, citing "economic reality", which, he said, did not allow large-scale imports that in any case were more expensive. He maintained that state-run GAIL has inked liquefied natural gas (LNG) contracts for prices as high as $11 to $14 and spot prices were hovering at $9 – $10 per mmBtu. Chidambaram said the government has fixed "only the output price" of gas, while it was yet to work out the "input prices" of fuel (natural gas) for the fertiliser and power sectors. Both Chidambaram and petroleum minister Veerappa Moily cited stagnation in natural gas output from PSU oil and gas companies and the steep fall in output of private sector (read Reliance Industries) gas fields as the key trigger for the move. Gas output from private sector fell to 40 mmcmd from 73 mmcmd earlier while production of PSU firms stagnated at 70 mmcmd. Moily projected the demand for natural gas at 234 mmcmd by 2016-17 based on the current consumption growth. The finance minister also contended that the government would possibly reverse the Indian companies' increasing appetite for making investments abroad. He maintained that $10 billion worth of overseas investments from Indian firms were in the pipeline. This is in addition to the $27 billion India Inc has already invested on the foreign shores. "The only way to correct this is to give them (Indian companies) reasonable price for natural gas" Chidambaram said. He reeled off statistics to support his claim that the gas price revision was inevitable and "an economic reality". He maintained that the "high cost of imports was simply not sustainable and we do not have that kind of money." He also cited that expansion projects of fertiliser companies were not progressing due to non-availability of gas, while power firms continued to reel under inadequate fuel supplies and higher prices in international markets. Chidambaram said that the government accepted the recommendations of the Rangarajan committee, barring the element on 'spot price', which was used to form the basis for domestic price revision. He said natural gas prices would be reviewed and readjusted every three months, depending on global price movement, demand and supplies apart from possible increase in gas output back home. However, the industry may not be entirely with the government on the way theywould want to be compensated for the higher gas price. Iffco, the largest fertiliser cooperative, has suggested an alternative route. Instead of increasing subsidy, Iffco, managing director, US Awasthi said, "the fertiliser industry must be freed from government controls, in terms of pricing and distribution." Pointing to the inordinate delay in payment of subsidies to companies, Awasthi said the government should consider alternative modes for paying subsidy to farmers, perhaps through direct cash transfers. This is being pushed for by major fertiliser companies to insulate their cash flows due to any delay in the release of subsidies and to avoid liquidity crunch. Rating agency Crisil on Friday predicted that net margins of fertiliser companies would drop while their interest costs would increase by about 40 basis points due to the delay in subsidy payments. Crisil has projected ONGC's profits before tax, depreciation and interest liabilities to go up by about Rs 13,000 crore while OIL's profitability would move up by Rs 1,500 crore. The rating agency estimated that the increase in gas prices would translate into Rs 2 per Kwh increase in electricity tariff. via Business - Google News http://news.google.com/news/url?sa=t&fd=R&usg=AFQjCNE-ZlSx02sBUr2CL0T6eEeDsgcyog&url=http://www.mydigitalfc.com/news/after-gas-price-hike-govt%25E2%2580%2588offers-cushion-209

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