Govt hikes Natural gas rate... Rangarajan formula !!

The market is buoyant and shares of gas exploring companies like ONGC  , Reliance Industries  and Oil India  rose after an expert panel approved gas price hike, a move that could  boost bottomlines of these companies by atleast 10 percent.

The Cabinet Committee for Economic Affairs (CCEA) on Thursday night approved the Rangarajan panel's complex pricing proposal to hike the natural gas price to USD 8.4 per mmbtu (metric million British thermal units) from April 1, 2014.  The committee has further noted that Rangarajan panel's formula for gas pricing would be valid for five years and gas prices will be revised quarterly.  The government of India has approved a doubling of natural gas prices, in a politically-sensitive move that will take effect around the time of next year's elections. The rise will have a knock-on effect on the cost of electricity, transport fuel, fertiliser and cooking gas.

Indian state energy companies welcomed the news, saying it will increase investment within the sector and help to attract money from outside. Well, Corporates can be happy – but the common man would be made to bear the additional burden and hence the price increase is likely to be unpopular with voters, who go to the polls for both local and national elections within the next 12 months. The Communist Party of India (CPI) described the price rise as a "disaster", which would lead to accelerating inflation and higher costs for farmers.

Some reports suggest that  the decision of the Cabinet Committee on Economic Affairs, headed by Prime Minister Manmohan Singh, went along with the Rangarajan Committee formula was consequent to the demand made by Mukesh Ambani-owned Reliance Industries Limited (RIL) for doubling, thus bringing them on a par with the international price of LNG.

IANS reports that these would be the people who will suffer the consequences of the Govt's actions:

* The hike would directly impact over 21 lakh households using piped natural gas.

* More than 17 lakh vehicles running on CNG.

* It would also jeopardize the economic competitiveness of more than 1,000 small and medium enterprise sectors.

* The blow would be higher for 119 million farmers who would have to pay 65 per cent more for urea — from Rs 5,360 per tonne to Rs 8,892 per tonne.

Prices only move one way ^^^^ up up up…. Not the shares that you have ….

With regards – S. Sampathkumar

PS: Collated from Indian Express and Economic Times.