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.

    Need of this committee

    • The committee was tasked with suggesting a fair price to the end-consumer while ensuring a market-oriented, transparent and reliable pricing regime for India’s long-term vision for ensuring a gas-based economy.
    • The mandate is to suggest a regime that would help raise domestic production to help meet the goal of 15% of energy coming from gas by 2030. 

    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.  

    What is Indian Basket (IB)?

    • It is also known as the Indian Crude Basket.
    • It is the weighted average of Dubai and Oman (sour) and the Brent Crude (sweet) crude oil prices. 
    • It is used as an indicator of the price of crude imports in India and the Government of India watches the index when examining domestic price issues.

    Source: TH