Companies, investors fret over political risks in enforcing gas price hike from ... - Economic Times

Prices | Financials | Company Info | Reports NEW DELHI: After the euphoria, which sent share prices soaring, energy firms and investors are concerned about the political risks in implementing the decision to double gas prices next April as its inflationary and fiscal impact would be felt by the new government, which may review the move to please farmers and households. "This decision passes on the buck to the next government post-elections. The new government would have to bear the brunt of politically dealing with this decision, hence it could either lower the price marginally or alter the formula," said ICICI Securities analyst Rohit Ahuja. Citigroup said the government had taken the decision in a convenient political window as elections are still some time away but the acceptance by the next government is an issue. "The decision to approve the Rangarajan panel's formula for gas pricing has been taken within a conducive political window - not only does it avert political impact on the 2014 general elections (any inflationary impact will only be felt later in FY15), but also since the earliest state elections (Delhi, Madhya Pradesh) are (about) six months away. While this does provide visibility for exploration & production investments, implementation (and political acceptance by the next government) will be key," it said in a research note. No guarantee on output Leftist parties have slammed the decision and demanded a rollback, alleging it is a sellout to MukeshAmbani's Reliance Industries. BJP, meanwhile, said higher gas prices would stoke inflation, but the party has not been as critical as the communists. However, the Gujarat government, headed by BJP's likely prime ministerial candidate, NarendraModi, is pitching for higher gas prices for Gujarat State Petroleum Corp, which is developing a block in the KG Basin where Reliance Industries is also producing gas. On Sunday, senior BJP leaders ArunJaitley and YashwantSinha declined comment. Moody's expects ONGC's revenues to increase by $1.5-2 billion and RIL's revenues to rise $300-500 million in FY15, based on its estimate of their gas production between April 2014 and March 2015. The government justifies the decision saying the new price of gas, about $8.4 per unit, is much lower than imported liquefied natural gas (LNG) which costs about $12. LNG accounts for 30% of India's gas consumption which would rise to 70% in 12 years unless domestic output is increased, for which companies should be lured with attractive prices. Companies are investing heavily in LNG and India's LNG import capacity will rise from 15 million tonnes a year to 50 million tonnes in four years. But critics say there is no guarantee that higher prices will lead to more gas discoveries though doubling the price would certainly raise the earnings of state-run ONGC by a third and Reliance Industries by 10% at the cost of key customers, particularly in the politically sensitive power and fertiliser sectors. Copyright © 2013 Times Internet Limited. All rights reserved. via Business - Google News http://news.google.com/news/url?sa=t&fd=R&usg=AFQjCNE2-lUG4YPAzK8bo281tCwrbH65fA&url=http://economictimes.indiatimes.com/news/politics-and-nation/companies-investors-fret-over-political-risks-in-enforcing-gas-price-hike-from-april-2014/articleshow/20850725.cms

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