People's Democracy

(Weekly Organ of the Communist Party of India (Marxist)


No. 26

June 30, 2013


Desist from Hiking KG Basin Gas Price: Left


THE four Left parties, namely the CPI(M), CPI, RSP and Forward Bloc, have demanded that the UPS government must desist from hiking the price of natural gas as it would have a horrible impact on the whole of our economy. At a media conference organised at A K Gopalan Bhavan in New Delhi on June 24, leaders of the four Left parties raised questions about the undue haste the government, and in particular the finance ministry and Planning Commission, are displaying for effecting such a hike in order to enable a particular corporate house to reap windfall profits.


It is to be noted that the proposed hike is to come into effect from April 2014.


In this regard, Sitaram Yechury, leader of the CPI(M) group in Rajya Sabha, demanded that before the government announces any such decision, there must be extensive discussions among various ministries of the union government and with state governments, and also a discussion on the issue in both houses of parliament.


Gurudas Dasgupta, leader of the CPI group in Lok Sabha, and RSP leader Abani Roy were also present at the media conference.   


Describing the proposed hike as altogether wrong, Yechury said any rise in gas price would lead to hefty hikes in fertiliser and power prices, which burden either the government would have to bear as increased subsidies or would be passed over to the peasants and power consumers, and that both these situations would be disastrous for the economy. Putting a question mark on the necessity of the proposed hike, Yechury said there was absolutely no logical basis for any such decision. For any industry, the price is normally fixed on the basis of actual cost plus a reasonable profit, but this criterion too does not justify any hike. Terming the proposed hike as one meant to excessively benefit a particular corporate house, namely Mukesh Ambani and his Reliance group, the CPI(M) leader said nowhere from the USA to Pakistan and Bangladesh in our neighbourhood are the gas prices higher than in India.


Gurudas Dasgupta accused that the government was overawed by a particular industrial house, and drew attention to the fact that the Reliance has decreased its natural gas production from Krishna Godavari (KG) Basin to the level of 19 per cent only. He also pointed out how the government was adamant to rush excessive benefits to this private company in the next five years --- more than what the Rangarajan committee had proposed. He also questioned the logic of fixing the gas prices in dollars and reminded that the said private company was already garnering about 15 per cent extra profits simply because of the falling rupee. He said the proposed gas price hike would raise the fertiliser prices by about 6,000 rupees per tonne and power tariff by two rupees per unit.


In view of its adverse all-round impact expected for our economy, the Left parties appealed to all the political forces to come forward and prevent the government from making such a disastrous move.




Below we reproduce the joint statement issued on this occasion by the Left parties in view of the move of the government to increase the prices of natural gas from the KG-D6 Basin.


1) The government is going to increase the prices of natural gas, which is a major input for the production of fertilisers and power in the country. The present price of natural gas in 4.2 dollars per mmbtu (million British thermal units). The government appointed Rangarajan committee has suggested a price of 8.4 per dollars mmbtu from April 2014. While the power and fertiliser ministries are opposed to the recommendations of the Rangarajan committee and are pitching for a lower price, the petroleum ministry, finance ministry and Planning Commission are insisting on a price even greater than the Rangarajan formula. Though the increase in prices would be applicable to all producers, both public sector undertakings (PSUs) and private companies, the super high profits of private companies will be retained by them, whereas government can mop up the increased revenues of PSUs (and in theory at least, be used to offset the increase in subsidy).


2) The petroleum ministry has agreed to the Rangarajan prices for three years and has recommended a price of 14 dollars per mmbtu (open market prices) for the last two years. The finance ministry has recommended a price of 11 dollars per mmbtu and the Planning Commission has recommended a price of 9.2 dollars per mmbtu (on average) for three years and 14 dollars per mmbtu (open market prices) for the last two years.


3) Considering a production of 50 mmscmd (million metric standard cubic metres per day) from the KG-D6 block, even with the Rangarajan formula, the subsidy implications are gigantic on account of natural gas produced from KG-D6 block. It would imply an additional subsidy of Rs 90,000 crore in the five year period (2014-15 to 2018-19) over the current levels of fertiliser and power subsidy. With the petroleum ministry, finance ministry or Planning Commission formula, the figure would increase further to Rs 1,38,000 crore, Rs 1,46,000 crore or Rs 1,48,000 crore respectively.


4) With its stretched finances, the government will not able to meet these subsidy requirements and will perforce raise the prices of fertilisers and power. Even with the Rangarajan formula the unit cost of power will rise by Rs 2 per unit. If the recommendations of petroleum ministry, finance ministry or Planning Commission were accepted, this would imply an average increase by Rs 3, Rs 3.20 or Rs 3.30 per unit respectively.


5) Similarly, with fertilisers, the increase in prices with the Rangarajan formula would be Rs 6000 per metric tonne. If the recommendations of the petroleum ministry, finance ministry or Planning Commission were accepted, this would imply an increase of Rs 9200, Rs 9700 or Rs 9900 per tonne respectively.


6) In the backdrop of the slowdown in the economy and persistent inflation, this magnitude of price increase would deal a death blow to the Indian economy and cause untold hardship to the people of the country and its farmers. We demand that any price increase should  be kept in abeyance and the government should come out with full facts and figures and have debate with all stakeholders before it pushes ahead with this move,


7) It should also be noted that the entire price increase/enhanced subsidy will be passed on to just a single corporate house as super normal profits, since the profit share of the private operator is 90 per cent. Natural gas belongs to the people of the country and the government is holding it in trust for the people. They cannot be plundered by the corporates and actively be supported by the very arms of the government that are supposed regulate them.