evolution of gas pricing in India

Historically, natural gas prices in India have been regulated using a variety of mechanisms.
Until the 1970s, gas prices were based on recommendations made by expert
committees. During the 1970s and most of the 1980s, prices were determined by the
monopoly gas producers — ONGC and OIL — on a negotiated basis. Since 1987,
the government has set uniform gas prices across the country, with an exception of
the north east region, which receives gas at concessional prices.
In 1997, natural gas prices were pegged to the import parity price of a basket
of internationally traded fuel oils. Prices were set to increase progressively as a
proportion of the fuel oil basket price, from 55 per cent in 1997-98 to 85 per cent
in 2000-01. To curb any major fluctuations in gas prices, the government set a
price band, with a floor price of 2150 Indian rupees per thousand cubic metres
and a ceiling price of 2850 Indian rupees per thousand cubic metres. However,
in 1999-2000 gas prices reached the ceiling price, as international fuel oil prices
continued to increase. The process of raising gas prices to achieve full import parity
was stalled and gas prices remained at this ceiling until 2005-06.
In July 2005, the gas price for priority sectors — electricity generation and fertiliser
sectors and other users specified on occasion by the government or court — was
revised upwards to 3200 Indian rupees per thousand cubic metres. The price
of gas in the north east region was pegged at 60 per cent of the revised price.

However, the price of gas for consumers in all other sectors more than doubled to
6893 Indian rupees per thousand cubic metres .
Administered gas prices were revised further in 2006, with prices for non-priority
sectors such as steel raised by around 23 per cent, and by 20 per cent for city
gas distribution companies and customers consuming less than 18.25 million
cubic metres a year. The priority sectors continue to pay 3200 Indian rupees per
thousand cubic metres. Further rises in gas prices are anticipated once the Tariff
Commission under the Ministry of Commerce and Industry makes recommendations
on prices for gas sold under the administered pricing mechanism.
There have been recent disputes over privately produced gas not subject to administered pricing, including the pricing formula for gas sourced from RIL fields in the KG basin. RIL proposed a landed price of US$4.33 per million British thermal units to the government for approval in mid-May 2007 and stated that there would be
delays in the commencement of production should prices remain unresolved.
The price for gas proposed by RIL is substantially higher than the prices paid by
customers who currently have access to subsidised gas. The government subsequently made changes to the pricing formula proposed by RIL where the landed price of KG basin gas would be US$4.20 per million British thermal units. However, as of late September 2007, the issue remained unresolved (Platts 2007c).