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Mains Daily Question

Mention the major recommendations made by Kirit Parikh Committee. Examine the move to accept Kirit Parikh Committee recommendations.

The Kirit Parikh panel was set up this September to review the gas pricing formula for gas produced in the country with the aim to ensure a fair price even as global prices for gas remained high. 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.

Major recommendations

Fixed Ceiling price (till 2027)

·  Implement a fixed pricing band for APM (Administrative Price Mechanism) gas from old fields

·  The old fields account for two-thirds of natural gas produced in India

·  Currently, government controls the price of Gas produced from old fields

By 2027

·  Move to a purely market-determined natural gas pricing system by 2027

Linking the price

·  Link the domestic gas price to 10% of the cost of imported crude oil

No-cut category (uninterrupted supply)

·  Some of the sectors have been kept in the ‘no-cut’ category (meaning that supplies will remain uninterrupted in this category even in case of a decline in production)

·  E.g., The city gas and fertilizer sector will continue to get top priority in the allocation of APM gas.

Inclusion of gas in GST

·  Include gas in GST with compensation for five years

Removal of caps on gas prices

·  Remove caps on gas prices within three years.

Gradual exit from gas allocation business

·  Government should gradually exit out of the gas allocation business.

No changes to the existing pricing formula for new fields and fields with difficult geology

· New and difficult fields enjoy pricing freedom to compensate for the greater risk and cost involved in these projects, but they have a pricing cap.

· The report suggests that the upper cap should be removed from January 1, 2026.

·  E.g., for fields in the Deep Sea or in high-temperature, high-pressure zones.

Significance of the move

  • Good for domestic producers: It will benefit domestic producers of natural gas in India, as they will now be able to receive a higher price for their products.
  • Will incentivize domestic production and lead to an increase in domestic supply.
  • Will make the pricing of natural gas more transparent and efficient
  • This will help raise the share of gas in India’s energy mix to 15% by 2030 from around 4% at present.

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.  

Additional Info

Current Gas Pricing in India

  • Gas priced under APM (Administered Price Mechanism) is set by the Government of India. Under this system, the oil and gas sector are controlled at four stages viz. production, refining, distribution and marketing.
  • Non-APM or Free Market Gas is further divided into two categories, namely, domestically produced gas from Joint Venture fields and imported LNG. The pricing of JV gasis governed in terms of thePSC (Production Sharing Contract). While the price of LNGunder term contracts is governed by the SPA (Sale and Purchase Agreement)between the LNG seller and the buyer, the spot cargoes are purchased on mutually agreeable commercial terms.
  • Further, there is differential pricing existing for different sectors. Subsidized sectors such as power and fertilizer get relatively less prices as compared to other sectors.
  • Also, region specific pricing exists in the country with North Eastern states getting gas at relatively cheaper prices as compared to other parts of the country. Pricing of a major share of gas supplies in the Indian market iscontrolled and is not market driven as government approval is required before changingthe price.

Indian Crude Basket (IB)

·   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.


POSTED ON 18-04-2023 BY ADMIN
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