Montek wants future gas pricing policy linked to coal

Vol 9, PW 22 (23 Feb 06) People & Policy

Montek Singh Ahluwaliah is no ordinary mortal.

His CV reads like a PR campaign for the International Monetary Fund and World Bank in Washington where he has worked on and off for the past 30 years. Today, as Prime Minister Manmohan Singhs closest confidant (the son he never had) and the pin-up free market guru of liberalisation, Montek, aged 62, directs Indias economic policy as head of the Soviet-sounding but hugely important Planning Commission.

In short, when Montek talks, people listen. Rather, when Montek says future gas pricing policy in India must be related to coal prices domestic gas producers and LNG importers should start sweating! Because on 20th February during his keynote address to delegates at the GAIL-sponsored 4th Asia Gas Partnership in Delhi thats exactly what he said.

Monteks argument was blindingly simple, too simple for some. Projections of strong gas demand in India assume that 80% of the gas will be used for the power sector, he said.

If 80% of the gas in this country is used for the power sector then any rationale pricing of gas will have to be related to coal. Montek argued that the power sector - accustomed to paying modest prices for filthy Indian coal - shows very little appetite for gas at international prices and that $3.50 (per mmbtu) seems to be a price they can absorb.

He was categorical that it would not be possible to formulate an integrated energy policy for India unless we solve the issue of pricing. Despite this warning, Montek admitted that gas imports are inevitable given projections of a 400% increase in demand over the next 20 years.

There is no doubt that India will remain gas deficit, he said. This has to be met through gas imports one way or the other.

We already import a lot of petroleum so why not import gas. How will the gas be priced Perhaps linked to coal, argued Montek, but definitely, far more reflective of market conditions than now.

There is enormous pent up demand for gas at controlled pricing, said Montek. It is not my assumption that this demand would dry up if prices were freed.