Kirit Parikh Panel for Gas Pricing

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• Recently, the government appointed a Kirit Parikh committee to review the gas pricing formula.

Major recommendations of the committee

• Ceiling price 
  • There is a need for a fixed pricing band for gas from old fields which is called APM (Administrative Price Mechanism) gas.
    • These fields account for two-third of natural gas produced in the country.
  • This would ensure a predictable pricing regime for producers while also lowering prices of CNG and piped cooking gas.
    • The prices have risen by 70% since 2021 due to an increase in input costs.  
  • Currently, the legacy or old fields are governed on a nomination basis without any condition of sharing profits and therefore the government controls its price.
•  Linking the price
  • The panel has sought a link in the gas price to imported oil.
• Improved profits
  • If the recommendations are implemented then the state-run ONGC and OIL will have to reduce prices from the current level and this will help improve the margins of city gas companies like IGL, MGL and Gujarat Gas.
• No-cut category
  • The city gas will continue to get top priority in the allocation of APM gas. 
    • The sector will be in the ‘no-cut’ category which means that the supplies to other consumers will be cut first in case of a decline in production.
• Other recommendations:
  • To include gas in GST with compensation for five years.
    • This would be done by subsuming excise duty charged by the central government and varying rates of VAT levied by state governments.
  • Caps on gas prices must be removed in three years.
  • Government should gradually come out of the gas allocation business.
  • No changes to the existing pricing formula for fields with difficult geology.
    • Currently, fields in Deepsea or in high-temperature, high-pressure zones are governed by a different formula that includes an element of imported LNG cost and is subject to a ceiling.

Way forward

• The administered pricing mechanism (APM): is still determined by the government on the basis of a formula.
  • The need is that domestic producers must have complete pricing freedom which is the only way to up local production.
• India needs to increase its share of gas consumption from 6 percent currently and needs to protect consumers from getting implicitly subsidised gas.
• Lowering import prices will impact domestic producers and the government should look at giving complete freedom on pricing.  

Source: TH