Most of Kirit Parikh's reforms ignored by GoI

Vol 26, PW 9 (20 Apr 23) Midstream, Downstream, Renewables

Happy gas consumers translate into more votes for your party in general elections.

Hardly surprising then to hear that the BJP-led government has ignored several radical reforms suggested by the Kirit Parikh Committee on gas pricing. With a general election looming in 2024, the government has cherry-picked consumer-friendly recommendations made by the committee while revising the gas pricing formula, announced on April 7 (2023).

"The Cabinet Committee on Economic Affairs (CCEA) has not accepted the Kirit Parikh committee recommendations (submitted on November 30, 2022) in full," notes an industry analyst. "Only recommendations that make gas consumers happy have been chosen."

Parikh's committee offered nine critical reforms, but the government only accepted four. Despite the committee's proposal of a $0.5/mmbtu yearly increase in the APM gas price ceiling fixed at $6.5/mmbtu, the CCEA has approved an annual increase of only $0.25/mmbtu.

But even this begins in 2025-2026 - a year after the national elections. For 2023-24 and 2024-25, the CCEA has fixed the floor price at $4/mmbtu and the ceiling at $6.5/mmbtu.

"This is bad news for ONGC but good news for (subsidised) APM gas consumers," says a source. "The increase in the ceiling is lower than expected."

Perhaps the most radical reform suggested by Parikh's committee was to scrap the subsidy-driven APM pricing structure and abolish the government-imposed minimum and maximum prices from January 1 (2027). "But the government ignored this and said the floor and the ceiling prices will continue," we hear.

Another sweeping proposal was to remove the cap for ultra-deepwater HP/HT gas from January 1 (2026). This, too, failed to convince the government.

"The HP/HT ceiling-based formula will continue," says a source. Reliance-BP would have benefitted most if the proposal had been accepted, boosting revenue from their deepwater discoveries at KG-D6, which remains subject to the $12.12/mmbtu higher cap until September 30 (2023).

Another radical suggestion was to bring gas under GST. "No mention of this anywhere," adds a source.

A recommendation to re-examine the domestic gas allocation to different sectors was likewise rejected, with no gas utilisation policy change. However, the government accepted a recommendation to link the gas price to 10% of the Indian Crude Basket, scrapping an earlier link between domestic gas and international trading hubs.