The petroleum ministry has suggested that natural gas prices be increased on ad-hoc basis with immediate effect because they have remained static since October 1999.

A tariff committee should be appointed to study the cost structure of the Oil and Natural Gas Corporation and Oil India Ltd for natural gas and suggest a reasonable price till a complete deregulation of gas prices is brought about, the ministry has said.

The gas pool account should be limited to Rs 100 crore (Rs 1 billion) a year as per the actual requirement of compensation for concessional gas prices in the Northeast and other purposes, it said.

The suggestions were circulated among members of the group of ministers on gas pricing, and were to be discussed at the panel's meeting on July 7, which was later postponed.

The ministry has also said the 8 million standard cubic metres of gas produced per day at the Tapti and Panna-Mukta fields may be sold by Gail (India) Ltd or the producer at market-determined prices.

However, 1 million standard cubic metres of gas per day from the Ravva project may be taken by Gail and adjustment for the higher cost made as per the existing arrangement.

The gas produced by ONGC and OIL from new gas fields could be sold at a price determined in terms of new exploration licensing policy contracts, the ministry said.

"That will provide a level playing field for these public sector oil units," it pointed out.

The consumer price of gas for general consumers is now Rs 2,850 per thousand cubic metres (mcm). In the Northeast, it is Rs 1,700 per mcm, which works out to 60 per cent of the general consumer price.

It has been proposed that the price of gas for the Northeast be pegged at 60 per cent of the revised price for the general consumer.

The difference between the producer price and the consumer price in the Northeast region may be reimbursed to OIL from the gas pool account as is being done under the existing arrangement.

Gas transportation charges along the HBJ pipeline system were set at Rs 1,150 per mcm from October 1, 1997, based on the recommendations of the Sankar Committee.

At that time, the cost of natural gas as fuel for Gail was estimated at Rs 2,066 per mcm. This included the then basic consumer price of Rs 1,850 per mcm (Rs 1,500 per mcm as producer price and Rs 350 per mcm as gas pool contribution) and royalty with taxes payable on the gas.

The petroleum ministry is of the view that with the subsequent increase in gas prices, the figure of Rs 2,066 per mcm also requires revision. The current consumer price of gas is Rs 2,850 per mcm.

"Taking into account royalty and taxes, the total price of gas works out to Rs 3,219 per mcm, which is the present cost of fuel for Gail, against the then cost of Rs 2,066 per mcm," the ministry has argued.

At this price, the ministry says, fuel cost works out to be 6 per cent of the total transportation charges.

Considering these factors, there is need to increase the HBJ transportation charges at the rate of Rs 3.35 for every Rs 100 per mcm increase in gas prices.

The process of linking the calorific value and the provision for compensation on account of inflation should continue without any change, the ministry has suggested.