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  • 07 December, 2022

  • 5 Min Read

Kirit Parikh Gas Pricing Panel

Kirit Parikh Gas Pricing Panel

The government recently appointed a Kirit Parikh committee to review the gas pricing formula.

The committee's major recommendations:

Maximum cost:

  • A fixed pricing band for gas from old fields, known as APM (Administrative Price Mechanism) gas, is required.
  • These fields produce two-thirds of the country's natural gas.
  • This would provide producers with a predictable pricing regime while also lowering CNG and piped cooking gas prices.
  • Prices have risen by 70% since 2021 due to rising input costs.
  • Currently, legacy or old fields are governed on a nomination basis without any requirement of profit sharing, and thus the government controls its price.

Linking the price:

  • The panel has advocated for a link between gas prices and imported oil.

If the recommendations are followed, the state-run ONGC and OIL will be forced to lower their prices from their current levels, which will help improve the margins of city gas companies such as IGL, MGL, and Gujarat Gas.

Category with no cut:

  • The allocation of APM gas will continue to prioritise city gas.
  • The sector will be in the 'no-cut' category, which means that if production falls, supplies to other consumers will be cut first.
  • Other suggestions include including gas in GST with a five-year compensation period.
  • This would be accomplished by combining the central government's excise duty and the various rates of VAT levied by state governments.
  • Gas price caps must be lifted within three years.
  • The government should gradually withdraw from the gas allocation business.
  • There will be no changes to the current pricing formula for fields with difficult geology.
  • Deepsea or high-temperature, high-pressure zones are currently governed by a different formula that includes an element of imported LNG cost and is subject to a cap.

Need of this committee:

  • The committee was tasked with proposing a fair price to the end-user while ensuring a market-oriented, transparent, and dependable pricing regime for India's long-term vision of ensuring a gas-based economy.
  • The mandate is to propose a regime that would aid in increasing domestic production in order to meet the target of 15% of energy coming from gas by 2030.

Way Forward

  • The government still uses a formula to determine the administered pricing mechanism (APM).
  • Domestic producers must have complete pricing freedom, as this is the only way to increase domestic production.
  • India must increase its share of gas consumption from 6% to 7% and protect consumers from receiving implicitly subsidised gas.
  • Lowering import prices will have an impact on domestic producers, and the government should consider giving complete pricing freedom.

Source: The Indian Express

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