Energy: Will there be complete decontrol? - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

Energy: Will there be complete decontrol?

Dec 19, 2001

With many betting on gas consumption in the country to increase, activity, especially on the policy front seems to be heating up. Expected dismantling of the administered pricing mechanism (APM) in April 2002 is likely to result in policy changes for the gas sector as well. With complete deregulation of the hydrocarbon sector many believe that gas prices should also be de-controlled. The Government, primarily the Ministry of Petroleum & Natural Gas (MoPNG) and Finance Ministry are in discussion to roll out a suitable policy for the gas sector post deregulation. Currently, the discussion seems to be in stalemate, as the Petroleum Ministry favours 100% linking of domestic gas prices to international parity rates. Finance Ministry, on the other hand, is of the opinion that prices should be increased by Rs 600 per annum for the next five years. By then, the Finance Ministry reckons that domestic prices would have caught up with international prices.

Gas prices are generally linked to a basket of fuel oil. At current rates, the international price of gas is an estimated Rs 3,950 / thousand standard cubic meters (tscm). Over the past three years, linkage of domestic gas prices to import parity has increased from 55% in 1998 to 75% in 2000. Under the current mechanism domestic prices should be approximately Rs 2,960 / tscm. However, the pricing mechanism also has a cap at Rs 2,850 / tscm. Prices in Northeastern states are even lower in order to encourage industrial activity in the region.

Raising of linkage rates to 100% will result in a significant jump in domestic gas prices. The energy source is feedstock for a couple of sensitive sectors -- fertilisers and power -- that are the largest consumers. The two sectors combined constitute 75% of gas consumption. Both sectors offer heavy subsidy to the end user. Consequently, increase in feedstock prices could ring the death knell for the industry and/or significantly increase the Government subsidy bill, which is already playing havoc with finances. The concerned ministries are likely to reach a compromise on the current impasse.

Equitymaster requests your view! Post a comment on "Energy: Will there be complete decontrol?". Click here!


More Views on News

GAIL Misses Earnings Estimates. Company Ditches Plan to Split (Views On News)

Jun 10, 2021

GAIL's earnings and proposal to monetise pipelines through InvIT route, puts stock in focus.

ONGC Hits 52-Week High: Key Triggers that Drove the Stock This Week (Views On News)

Jun 5, 2021

ONGC stock at 52-week highs amid the recent rally in crude oil prices.

Adani Enterprises Hits New Record High. Marketcap Surpasses Rs 1.5 tn (Views On News)

Jun 2, 2021

Adani Enterprises share price is up 925.7% in one year. Can it go higher?

Here's Why Tide Water Oil Shares Are Rallying (Views On News)

Jun 2, 2021

The three reasons why Tide Water Oil shares have zoomed 1.5 times in less than a month.

What's Driving the Rally in Reliance Shares? (Views On News)

Jun 1, 2021

The recent run up in Reliance Industries shares helps Nifty post new record highs.

More Views on News

Most Popular

Hotel Stocks Will Reward Investors (Fast Profits Daily)

Jun 8, 2021

This is why I'm bullish on the hotel and hospitality sector.

My 'Unlock' Investments (Fast Profits Daily)

Jun 11, 2021

The best unlock investments you can make in the market.

The Most Visible Sign of India's Revival is on Two Wheels (Profit Hunter)

Jun 9, 2021

Investing in the best stocks could result in wealth compounding on a massive scale.

How I Discovered a 400-Year-Old Open Secret to Extreme Wealth (Profit Hunter)

Jun 11, 2021

Charlie Munger's open secret about investing success.


India's #1 Trader
Reveals His Secrets

Secret To Increasing Your Trading Profits Today
Get this Special Report,
The Secret to Increasing Your Trading Profits Today, Now!
We will never sell or rent your email id.
Please read our Terms


Jun 17, 2021 09:47 AM