The department of expenditure of the union finance ministry suggested the oil ministry to fix a ceiling price for domestic natural gas once the Rangarajan formula is adopted from April 2014.

On June 27, the Cabinet Committee on Economic Affairs cleared the adoption of the Rangarajan pricing formula for domestic natural gas from April 2014.

But while adopting this formula, the expenditure department suggested that gas producers should not be allowed to reap unlimited gains in the case of an upswing in global prices. Therefore, the department, in a letter to the oil ministry, suggested that any upside has to be capped.

Further, the department suggested oil ministry to examine whether it is possible to ensure that Reliance Industries (RIL) delivers its current supply shortfall at the old price of $4.2 per million British thermal unit (mBtu) and does not get undue benefit of an increased price. It adds that this can be applicable after the “technical difficulty” has been overcome.

It may be noted that RIL is unable to supply natural gas to power plants because of a sharp fall in the gas output from its KG-D6 field to 15 mscmd, compared to a target of 80 mscmd.

Following the decline in output, about 25 power plants are running short of gas. The production has fallen from a 2010 high of 61 mscmd. The allocation for the power sector from KG-D6, which was likely to be 29.7 mscmd, has fallen to zero for the sector at present.