Rangarajan panel's gas pricing formula may prove too complex

Rangarajan panel's gas pricing formula may prove too complexOil Minister Veerappa Moily recently confirmed that the government was going through the Rangarajan report to determine a new pricing formula domestic natural gas, but many believe that mechanisms suggested by the report may prove too complex to implement.

The panel, headed by chief of the Prime Minister's Economic Advisory Council, Chakravarthy Rangarajan, last month recommended prices be linked to international rates.

The Rangarajan report recommended that India should set gas prices at a twelve-month average of the United States Henry Hub and the United Kingdom National Balancing Point.

It also recommended that the Indian government could also set gas prices at Japan's liquefied natural gas price minus costs of freight & insurance, or by taking an average of the price of India's LNG imports, excluding costs of transportation.

But, it may prove difficult to determine a concrete pricing formula based on international prices, and it is a debatable point if the average price determined in any of the recommended ways can be considered efficient for usage and supply in the domestic market as internationally gas prices are characterized by disparate regional benchmarks.

Prime Minister Manmohan Singh's Government has long been trying to provide a boost to energy exploration and production in India so that the soaring bill of energy imports could be slashed. The government needs to allow gas explorers higher selling prices to attract them to invest in gas fields and increase production.

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