Poll panel asks govt to hold gas price hike
Mar 24 2014 , New Delhi/Mumbai
RIL, OIL, GAIL, ONGC take hit
In a late Monday evening decision, the poll panel said, “After taking into account all relevant facts, including the fact that the matter is sub-judice in the hon’ble Supreme Court, the commission has decided that the proposal may be deferred.”
Election Commission’s principal secretary K Ajay Kumar conveyed the decision to oil secretary Saurabh Chandra in a letter on Monday. The decision will directly impact the Mukesh Ambani-led Reliance Industries (RIL), public sector energy explorers ONGC and OIL and also GAIL.
Further, it may impact investment plans of international oil companies like British Petroleum and Niko Resources, which are partners of Reliance Industries in the KG basin.
Debasis Mishra, executive director of oil and gas at Deloitte, said, “The (election commission) decision was completely unwarranted, as gas price hike was not going to help any particular party.”
The postponement means the new government will have to take a call on the UPA government’s decision to double gas price after it takes charge at the end of May.
The Election Commission directive came on a reference from the petroleum ministry seeking its permission to notify the enhanced gas prices from April 1. The ministry needed the clearance as the election code of conduct came into force in preparation for the April-May general election.
The Election Commission’s directive is binding on the government till a new regime takes charge at the centre.
Reliance Industries (RIL) officials in New Delhi were taken aback by the decision, but were unwilling to comment. A company spokesperson in Mumbai said, “We have issued the new term sheets to the clients and would wait for the government to either notify the new gas price or the existing price following which we will review supplies to the clients, where the contracts were to come up for price review after five years.”
One option before RIL is to approach the Supreme Court, challenging the Election Commission directive on the ground that the decision to hike gas price was taken by the empowered group of ministers led by P Chidambaram way back in June last year and the cabinet committee on economic affairs (CCEA) validated the decision in September 2013 and January 2014.
Alternatively, RIL and other state-run oil companies will have to wait for the new government to take a call on the issue.
A senior official at PwC, an independent consultancy, said it's a temporary move, though the companies have the option of taking recourse to appeal to the ministry or approach the courts.
“On hindsight, it can be said that the government has missed an opportunity by not taking a decision before the whole thing went into the code of conduct. The decision to increase or hold the price could have been taken much before instead of waiting till the last moment,” a PwC official, who did not wish to be quoted, said.
The postponement of the gas price hike gives some reprieve to the gas-based industries like power and fertiliser plants. Retail power tariff too will hold at present level for the time being and fertilisers like urea, diammonium phosphates and muriate of potash will continue to be sold at current rates.
The government subsidy on power and fertilisers will also remain at current levels for the time being. The fertiliser subsidy for 2014-15 was estimated at Rs 67,970 crore in the interim budget. Given the spillover of Rs 32,000 crore outstanding fertiliser subsidy payment, the fertiliser subsidy bill may cross Rs 1 lakh crore in the next financial year.
In case the gas price is finally hiked, the government will have to provide another Rs 20,000 crore towards fertiliser subsidy or resort to an increase in the prices of retail farm nutrients.
Similarly, power tariffs may continue at the present level without increasing the losses of the state distribution companies that would have otherwise had to factor in the gas price hike.
Following the Election Commission directive, the petroleum ministry’s move to transfer all additional revenues to BP and Niko Resources into a dedicated escrow account has also come a cropper.
Mukesh Ambani’s RIL that holds 60 per cent stake in the KG D6 basin was to provide bank guarantee against penalties payable in case gas hoarding charges were proved in the east coast gas fields.