Industrial consumers will actually pay about $6.17 per unit for domestic gas instead of $5.6 announced by the government on Saturday because of changed parameter for determining heating value in the new formula.
The government on Saturday announced a new pricing formula on the basis of recommendations of a panel of secretaries. The new formula made several changes in the mechanism suggested by a panel under C Rangarajan that was approved by the UPA government.
The key change in the new formula is a shift from net calorific value (NCV) to gross calorific value (GCV) for calculating the price for each unit of gas. Calorific value is the quantity of heat produced by burning one unit of fuel at constant pressure and at zero-degree temperature.
Gross calorific value assumes that moisture present in fuel turns into vapour, which adds to heating during combustion. Net calorific value is the actual heating users get and assumes that there is heat loss from moisture turning into vapour during combustion. As a result, the heating property under GCV is higher than NCV and entails a 10% lower price for each unit of fuel
The existing gas price of $4.2 per unit is on the basis of NCV. The gas sale purchase agreements between sellers and buyers specify the price on the basis NCV. Now that the government has changed the heat value parameter to GCV, the actual price on the ground would be higher by 10%, or $6.17 per unit, marking nearly 45% increase against 33% indicated in $5.61 announced by the government.
TOI had on June 24 first reported that the government was looking at a price of $5.5-6.8 per unit.
Gas sellers are now expected to change the pertinent terms in tune with the new formula. "It is not a complicated thing (to change the heat value parameter) in the agreements. On the ground it would mean broadly adding 10% to the new price," an executive, who deals with such matters for a gas seller said on condition of anonymity.
The fact, however, is that even under the GCV regime, the new price would be much lower than $8.4, or double the present price, estimated on the basis of Rangarajan formula.
Oil minister Dharmendra Pradhan had on Saturday said PM Narendra Modi made it clear that common man should be protected from any major impact from the gas price hike.
Pradhan said CNG and PNG suppliers (such as Indraprastha Gas Delhi) would see how much they can absorb, gas transporter GAIL would look at pruning transportation charge wherever possible and states would be urged to lower taxes to avoid any sharp rise in CNG or PNG prices.
The new price appears acceptable to power and fertilizer industries also. Though the cost of power from gas-fired stations is estimated to rise by 45-55 paise per unit, the impact on overall tariffs would be minimal since such type of plants account for about 7% of generation capacity.
Source: Economic Times
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