Ashok Chawla Panel against taxing LNG Users for Imported Gas

A committee on allocation of natural resources headed by former finance secretary Ashok Chawla on 31 May 2011 opposed oil ministry's plan to subsidise costlier imported LNG by making users of domestic natural gas pay more. The committee in its draft report mentioned that a gas pooling arrangement, with a view to mitigate price volatility cannot be recommended.

The oil ministry is currently pushing for pooling or averaging out the price of domestic natural gas and imported LNG so that the high cost imported fuel contracted by Petronet LNG finds users.
The high powered panel called for market-determined pricing of natural gas and recommended the use of gas as an industrial fuel and for cooking and transport purposes instead of burning it in power and fertiliser plants. According to the committee subsidised gas should not be provided as an input (feedstock) for power plants since most of the output (electricity) is sold at market price.

Stating that the intent of the government is to move fertilisers to a consumer-based subsidy system instead of subsidising the input cost, the committee mentioned that subsidising gas as an input for urea plants was a weak strategy.

The primary objective of the government should be to supply power to the 40 per cent of the country that still does not receive electricity and who are highly cost sensitive. The committee felt that preferable to continue using cheaper coal for base-load power generation to reduce the subsidy impact.

The committee was not clear if input subsidies actually led to lower market prices of power. Power and fertiliser currently consume nearly 75 per cent of the total gas available in the country. With a whopping Rs 2.7 lakh crore being spent on oil imports in 2009-10, the committee felt it would be better to use gas to substitute for oil where possible, rather than coal.

The committee is in favour of moving gas to market pricing.

The committee stated that the freedom that currently exists in the New Exploration Licensing Policy provisions for contractors to determine the prices of their gas produce should be employed to move toward free pricing of gas from NELP fields.