The price freeze is over. The gas prices will go up. That bit is crystal clear from the news that managed to come out from the ECC meeting earlier this week. But the ECC press release has raised more questions than it attempts to answer.
The release says, “the weighted average tariff will be charged at Rs 930 / MMBTU till February 2021.” What remains unclear is if the weighted average being talked about also includes domestic consumers. Because if it does, then it defies logic, as the weighted average prices determined by Ogra in July, for both the distribution companies, comes at around Rs812/mmbtu. Even if one takes out, the domestic share of 20 percent – it would be a stretch to have the weighted average price at Rs930/mmbtu, as per Ogra’s determined rates.
What the ECC does clearly mention is that the domestic and tandoor users will be absolved of the price increase. This was largely expected, although never highly recommended. That said, the weighted average consumer gas price for FY20 for both SNGPL and SSGC combined was Rs738/mmbtu. As per Ogra’s determination of Rs813/mmbtu, the weighted average consumer price (WACP) would have increased by a very reasonable 10 percent – and the impact even after taking out the domestic consumers would not have been more than 15 percent.
But the mention of Rs930/mmbtu as the weighted average price till February 2021 is confusing at the least -because not only does it lead to an increase of 26 percent from last year, it is also inexplicably higher by 14 percent from the regulator’s determined price. For Rs930/mmbtu to be the case, prices for industrial sector will have to go considerably higher, and not by Rs40-50/mmbtu, as being quoted by news outlets.
What will become of the textile and other export-oriented sector in case the WACP does indeed go up to Rs930/mmbtu. Recall that the gas price for textile was set at Rs786/mmbtu for FY20 – lowest amongst non-domestic users. With more RLNG being allowed to be pumped in the system, higher WACP does start to make sense, but it can still not be possibly higher than the prescribed price by the regulator.
It is imperative that the detailed consumer price by category is published soon so as to put an end to the confusion. One possible explanation could well be that the WACP being talked about is inclusive of GIDC. This is usually not the case when consumer tariffs are announced. Let’s wait for more clarity.